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U.S. stocks rallied despite the uncertainty surrounding the midterm elections and the release of October consumer price data. For the week, The Dow finished up 4.1 percent. The S& 500 gained 15.9 percent, and the Nasdaq 8.1 percent.

We have been waiting for Consumer Price Index numbers to finally reflect cooling inflation, and in October a degree of relief. The Bureau of Labor Statistics reported headline inflation climbed 0.4 percent and core inflation 0.3 percent. The 12-month inflation rate fell to 7.7 percent. The past four months of lower inflation readings annualize to 5.5 percent core inflation.

Mortgage rates continued to rise last week. According to Freddie Mac, the rate for a 30-year fixed-rate mortgage rose from 6.95 percent to 7.08 percent. The rate for a 15-year fixed-rate mortgage rose from 6.29 percent to 6.38 percent.

No doubt the biggest question on investors’ minds is the short and long-term effects of the midterm elections. In the lead-up to the election, stocks had been trading as if the Republicans, typically seen as pro-business and market, gain of the House of Representatives. This could create the stage for gridlock and stall virtually any legislation that could disrupt markets. Historically, the S&P 500 has outperformed the market in the year following a midterm, posting an average return of 16.3 percent according to information from U.S. Bank.

On Monday, the Federal Reserve announced that consumer credit rose $25 billion in September. Revolving credit rose by 8.7 percent in September and by 12.9 percent for the third quarter. This reflects the fact that consumers are continuing to rely on credit cards to help ends meet in the face of continued inflation.

On Tuesday, the National Federation of Independent Business released its report showing that small business optimism fell to 91.3 in October, which is below the historical average of 98. Small business owners expressed a pessimistic outlook regarding sales growth and overall business conditions. The number of business owners looking to increase their workforces over the next three months fell to 20 percent but is still over the historical average. Nearly half of those surveyed, especially those in the construction, manufacturing, and transportation sectors, reported having open positions that they could not fill. These labor shortages, along with supply-chain disruptions and inflation, have made it difficult for many small businesses to keep up with demand. Half of the respondents reported having to increase the prices of their services and products.

On Wednesday, the U.S. Census Bureau announced that September sales of merchant wholesalers rose 0.4 percent to $699.9 billion. Merchant wholesalers posted $918.5 billion in total inventories, which was up 0.6 percent from August. The inventory/sales ratio for September was 1.31, which is up 0.1 percent from a year ago.

Thursday saw the release of the October Consumer Price Index. The index rose 0.4 percent from September. The majority of the increase was seen in the shelter, gasoline, and food indexes. The energy index rose by 1.8 percent, and the food index rose by 0.6 percent.

The Bank of America Institute announced last week that discretionary consumer spending grew by 2.9 percent in October, which is slightly slower than September. Since last year, consumer credit and debit card spending has increased by 8 percent with card spending by household increasing by 3.1 percent. The greatest increase in discretionary spending was seen in households with annual incomes of $50,000 or more, which is likely due to the disproportionate impact of inflation on lower-income groups.

Key Reports to Look for This Week

The economic calendar for the week of November 14 through 18 includes:

Monday:

• Inflation, Federal Reserve

Tuesday:

• Producer Price Index, U.S. Bureau of Labor Statistics
• Empire State Manufacturing Index, Federal Reserve
• Real Household Debt, Federal Reserve
• Real Mortgage Debt, Federal Reserve

Wednesday:

• Retail Sales, U.S. Census Bureau
• Import Price Index, Bureau of Labor Statistics
• Industrial Production, Federal Reserve
• National Association of Home Builders Index, NAHB

Thursday:

• Unemployment, U.S. Department of Labor
• Housing Starts, U.S. Census Bureau

Friday:

• Existing Home Sales, U.S. Census Bureau
• Leading Economic Indicators, U.S. Department of Commerce

It was a volatile week in the stock market last week. The Dow finished up 1.2 percent. The S&P 500 lost 1.6 percent, and the Nasdaq fell 3.1 percent. For the year, The Dow is down 18.4 percent, the S&P 500 is down 24.8 percent, and the Nasdaq Composite has lost 34 percent

The major market indexes had a historic turnaround on Thursday, with the Dow Jones Industrial Average jumping 1,500 points from the lows of the day to the highest level of the day. The day started off with the market indexes dropping after the Consumer Price Index (CPI) showed another hot inflation report, which assures that the Federal Reserve will raise rates by another 75 basis points at their next meeting in November and again in December.

On Thursday morning, the consumer price index (CPI) was released. The CPI increased 4 percent, more than the Dow Jones estimate of 3 percent. On 12-month bases, the headline inflation number is up 8.2 percent, but is down from the peak reading of 9 percent last June.

Taking out the volatile food and energy prices, the core CPI was higher for the month, up 0.6 percent, higher than the Dow Jones estimate of 0.4 percent. Core inflation is up 6.6 percent from a year ago, the largest 1-year gain since August 1982.

In the headline number, another jump in food prices was a reason for the increase. Food was up 0.8 percent for the month, the same as August, and up 11.2 percent from last year.

Shelter costs, which make one-third of the CPU, increase 0.7 percent and up 6.6 percent from a year ago. Shelter costs include rent prices, and the increase in rents is mainly responsible for the increase in shelter costs. Medical care services cost increased by 1 percent in September.

According to an economist at MasterCard, consumer spending is still strong. Falling housing prices will eventually work to lower rents, which will help lower the overall inflation figures.

The producer price index (PPI) was released last week. The PPI is the measure of prices that U.S. businesses receive for the services and goods they produce. The PPI showed an increase of 0.4 percent for August, compared with the Dow Jones estimate of a gain of 0.2 percent.

On a yearly basis, the PPI rose 8.5 percent in September, which was a slight decrease from August’s increase of 8.7 percent.

On Thursday, after the release of the CPI report, bonds sold off, and yields jumped higher. For the first time since October 2008, the U.S. 10-year Treasury yield broke through 4 percent and closed at 4.01 percent. The 2-year Treasury yield hit 4.5 percent, its highest level since August 2007. Remember, when bonds sell and go lower, their yields rise.

Mortgage rates continued to climb higher last week. According to the primary monthly mortgage and Freddie Mac, the average 30-year fixed mortgage, it is now 6.29 percent. The rate is up 0.261 percent in 1 week and up 3.87 percent in 1-year.

Consumer spending was flat last month compared to August, as there is evidence consumers are dipping into savings for some products. Individual sectors are showing good consumer spending.

Since retail sales numbers are not adjusted for inflation, real spending across the sectors decreased for the month. Individual sectors that showed a decrease include sporting goods, furnishing and home stores, motor vehicles and parts dealers, and electronics.

Stores showing an increase in sales include online stores, clothing retail, general merchandise stores, and health and personal care stores.

This week’s economic calendar, October 17-21, includes:
• Tuesday: Industrial production and capacity utilization, U.S. Federal Reserve
• Wednesday: Housing starts
• Thursday: Weekly unemployment claims from the U.S. Department of Labor
• Thursday: Existing home sales, National Association of Realtors