After the U.S. Bureau of Labor Statistics posted rising inflation for October, the markets immediately speculated that the Federal Reserve would hike rates by 50 bps. The CME FedWatch tool indicated high odds of rates rising by 25 bps next month and again in January 2027.
The CPI rose by 0.4% M/M in October. The CPI for nearly every item increased. Energy prices rose by 0.7%, although a smaller rise compared to September. On Tuesday, the long-term 20+ Year Treasury Bill (TLT) sank by 1.32% to close at $80.88. The 2-year Treasury yield jumped to 4.75%.
Ed Yardeni wrote that the Fed would increase rates by 50 bps in its December meeting. He reasoned that the Fed was falling behind in its policy adjustments. As a result, the Fed might want to follow the 2-year note’s yield.
Investors need not worry about higher rates. The S&P 500 has plenty of upside ahead for the next few years. The U.S. economy continues to grow. The job market is strong to support the growing output.
The strong economy boosts consumer consumption levels. Investors will continue to accumulate consumer defensive stocks like Walmart (WMT), Costco (COST), Procter & Gamble (PG), and Dollar Tree (DLTR).
Conversely, investors are avoiding car retailers like Carvana (CVNA) and homebuilders like Lennar (LEN). Companies selling high-ticket items might struggle when consumers have limited disposable income.
