Too Hot to Handle

By Jeffrey Cane |  Wednesday, November 10 Heating Up. "The argument that inflation is transitory just got a lot harder to make," Lisa Beilfuss of Barron's wrote this morning after a report that showed consumer inflation running at its hottest officially since 1990  or perhaps even -- "on an apples-to-apples basis," according to economist Diane Swonk --   since the early 1980s.   The consumer price index surged in October, to a 6.2% annual rate. The prices gains, the Bureau of Labor Statistics said, were "broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors." Steve Englander, a strategist at Standard Chartered, wrote:  There was no silver lining in the CPI release – when we recalculated core removing car purchases and rentals, airplane fares, and hotel room tariffs, the CPI was still going up at a 5.4% annual rate. This broadening of price pressures is also visible in wages and may signal that inflation is getting more embedded. Investors have to decide whether the Fed and other central banks’ dovish forecasts and policy stances will be robust in the face of a few more months of difficult inflation releases. For today at least, investors decided that the Federal Reserve would need to stop being quite so patient about inflation and move more aggressively in raising interest rates.  Yields on Treasury securities, which recently had a surprising decline, surged following the CPI report today.   The yield on the two-year Treasury note rose to 0.503%, its biggest one-day gain since March 10, 2020, a time when the pandemic was beginning to shut down swathes of the economy.  The yield on the benchmark 10-year note climbed to 1.558%.   A lackluster auction of $25 billion in 30-year bonds this afternoon also weighed on Treasury prices and dragged stocks lower. The S&P 500 ended down 0.8%, the Dow Jones Industrial Average closed down 0.7%, and the Russell 2000  fell 1.6%.  The prospect of higher interest rates hurt richly valued Big Tech stocks;  Apple (-1.9%), Microsoft (-1.5%), Meta Platforms, a k a Facebook ( -2.3%), and Alphabet  (-2%).  The Nasdaq Composite closed down 1.7%.  Electric vehicles are quieter than their combustion engine rivals, but their stocks roared today. Tesla climbed 4.3% after a two-day plummet of 16% that erased roughly $50 billion of Elon Musk's net worth.  And, yes, Musk has now sold Tesla shares.  Al Root explains the move here.   Another EV contender -- Rivian Automotive -- had a stunning market debut today, rising 29% in what is the largest initial public offering of the year and the biggest since Alibaba's in 2014.  On a fully diluted basis, the market cap for the electric truck maker is $100.8 billion -- more than that of General Motors, Ford Motor, or Honda Motor.  Not bad for a start-up that as of the end of October had delivered a total of 156 vehicles.  Luisa Beltran and Al have more on the Ford- and Amazon.com-backed  Rivian here and here.  Energy was the weakest sector in the S&P 500 today.  A recent run-up in oil prices stalled as crude fell 3.3%, to $81.34 a barrel.  Oil is priced in dollars and was hurt in part by a strengthening in the dollar today. The traditional hedge against inflation -- gold -- extended its winning streak to five session, settling up nearly 1%, to to $1,847.60 an ounce.  The non-traditional hedge against inflation -- Bitcoin -- retreated after hitting records earlier this week. In afternoon trading, it was at $64,386.75.