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- Coiled Spring Capital Post CPI Comments Dec 13, 2022
This week in the stock market was always going to be difficult to manage. There are simply too many binary macro events to derail any semblance of serenity. The CPI print today was the first deluge of volatile events to digest. The CPI came in lighter than expected, but not by much. We wrote in our weekend report that that we thought the magnitude of any miss was more important than any miss itself. It seems the market agreed once cooler heads prevailed, and most of the morning strength was sold.
The CPI came in at +7.1% vs Oct at +7.7%, vs expectations of +7.3%, and while this was a step in the right direction, the actual level is still miles above where the Fed's desired target lies. The rate of inflation has now declined for 5 months in a row from a peak in June @ +9.1%.
We distinctly recall prognosticating to readers of our analysis that we thought inflation would peak over the summer, but we digress.
The core itself actually ticked up +.2% vs expectations of +.3%, which means it's still expanding. The market reaction in the morning was a bit perplexing but the positioning into the event was lopsided and any thus reaction, was destined to be unwound. Cooler heads seemed to prevail as the morning strength was sold and never fully recovered.
Here is the daily SPX action: strong gap open, followed by a test of the gap and finally closing above. This action can be construed as somewhat constructive on the surface.
The Dow on the other hand didn't share the same fate. The Dow gave up its entire 2% rally, and never saw the opening high print again. It also managed to drop negative, 2x. This is a sign of weakness.
Our positioning for the event is consistent with this price action.
Next up is the FOMC and Quad witching on Friday. Expect more fireworks.
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