Retail Sector Market Outlook (Nov 2022): Inflation Cools as Consumers Head Into Holiday Season

Sector Performance: Cooling inflation led to strong market rally. The Federal Reserve imposed another 0.75-point rate hike in the November FOMC meeting. During his post-meeting conference, Fed Chair Jerome Powell signaled the central bank could begin dialing back the pace of its increases soon but also saw a higher terminal rate. The CPI and PPI reading for October both came in lower than expected, which led to a strong market rally after the reading

Core inflation slows while energy prices rebound. The consumer price index was up 7.7% from a year earlier, the smallest annual advance since the start of the year and down from 8.2% in September. Core prices, which exclude food and energy and are regarded as a better underlying indicator of inflation, advanced 6.3%, pulling back from a 40-year high. US retail sales posted the biggest increase in eight months in October, as the value of overall retail purchases climbed 1.3% last month. The University of Michigan consumer sentiment index decreased to 54.7 in November from 59.9 in October, its lowest level since July, as concerns over high inflation and an upcoming economic downturn weighed.

US inflation might have peaked, as core prices continued to fall. Rent prices began to fall but might remain sticky in the short term. Energy prices rebounded in the month, as tight demand in oil market might lead to rising oil prices and persistent energy inflation. Retail sales topped expectations in October, as US consumer demand remained resilient. The strong retail sales data might affect market expectations about a Fed pivot in its monetary tightening. Therefore, investors should focus on the overall economic outlook and the subsequent policies established by the Federal Reserve in the future.

Macroeconomic risk, Monetary policy risk. Consumer demand might remain lower than expected. Sticky inflation might impact overall consumer sentiment