High inflation has been a problem throughout 2023. However, today, the Labor Department released the October Producer Price Index (PPI) report. The data indicates progress in tamping down inflation, and there are important implications for stock investors.
The PPI report is actually the second of two back-to-back data releases from the Labor Department. Stock traders are definitely in a good mood as the numbers provided a bullish one-two punch that sent the short sellers into hibernation. Does this mean it’s time to buy more stocks, though?
Markets Cheer PPI Report as Inflation Cools in October
The PPI report is quite different from the Consumer Price Index (CPI), which reports what consumers pay for goods. In contrast, the PPI data reveals manufacturers’ costs to produce goods.
As it turns out, October’s CPI increased 3.2% year-over-year (YOY), which is slightly below economists’ prediction of a 3.3% increase. The CPI was also flat from the previous month. This explains why the major U.S. stock market indexes soared yesterday.
Then, today’s PPI report also showed that inflation is cooling down. In fact, the PPI for October indicated deflation instead of inflation, as it declined 0.5% month-over-month (MOM). This represents the first month-to-month PPI decline since May.
Furthermore, October’s PPI only rose 1.3% YOY versus the previous month’s 2.2% increase. It’s like the cherry on top of the favorable CPI report for bullish stock investors. Their hope is that recent inflation data will convince the Federal Reserve to stop hiking interest rates and possibly even cut them in the coming months.
What You Can Do Now
Along with the CPI figures, the PPI report points to easing inflation and, potentially, more accommodating monetary policy from the Federal Reserve. However, there’s no way to guarantee what the central bank will do in its upcoming meetings.
Still, there are possibilities for investors now. A strategy that I favor is to consider buying stocks in sectors that have been beaten down lately. Examples would include utilities, consumer staples and banks. Stocks in these sectors could rally sharply if the Federal Reserve has, indeed, tamed inflation in 2023 and 2024.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
