{"id":207785,"date":"2025-09-11T13:06:26","date_gmt":"2025-09-11T17:06:26","guid":{"rendered":"https:\/\/ibkrcampus.eu\/campus\/uncategorized\/todays-rally-is-based-on-a-whisker\/"},"modified":"2025-09-12T14:52:00","modified_gmt":"2025-09-12T14:52:00","slug":"todays-rally-is-based-on-a-whisker","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.eu\/campus\/traders-insight\/todays-rally-is-based-on-a-whisker\/","title":{"rendered":"Today\u2019s Rally is Based on a Whisker"},"content":{"rendered":"\n<p>Stocks are in full-on rally mode this morning thanks to an \u201call-clear\u201d signal from the CPI report.&nbsp; On a month-over-month basis (why look at a yearly change that has 11 months of old data?), we got a miss on the headline CPI but got an in line reading on Core CPI.&nbsp; The latter is perceived as reinforcing the likelihood of a rate cut next week. But what few people seem to realize is that thanks to favorable rounding of the Core index, we were 0.004% away from a vastly different market reaction.<\/p>\n\n\n\n<p>All eyes were on the CPI release as the last data point that could reaffirm the potential for a rate cut by the Federal Reserve next week.&nbsp; A higher reading might have been perceived as derailing the FOMC.&nbsp; We did indeed get one, with headline CPI for August rising by 0.4%, ahead of the 0.3% consensus estimate.&nbsp; Uh-oh, right?&nbsp; Nope, the more important Core CPI came in with an as-expected 0.3% rise.&nbsp; Whew\u2026<\/p>\n\n\n\n<p>It is important to keep the Consumer Price Index (CPI) in perspective.&nbsp; We commonly think of CPI as measuring inflation, but it actually measures the level of prices in the economy.&nbsp; Instead, it is the change in that index over time that measures inflation.&nbsp; It is better to think of the CPI like the S&amp;P 500 (SPX).&nbsp; SPX is a measure of the level of stock prices.&nbsp; When SPX rose by 0.3% yesterday, we didn\u2019t say that stock price inflation was 0.3%, but we could have.&nbsp; It is the same idea, except that we like stock price inflation (\u201csocially acceptable inflation?\u201d).<\/p>\n\n\n\n<p>With the prior concept in mind, it makes it easy for non-economists (like me) to dig deeper into the actual report.&nbsp; We can compare the index on a month-to-month basis to get a more granular detail than the one-digit percentage change that is frequently reported.&nbsp; On that basis, we find that Core CPI rose by 0.346%, which is indeed a bit more than 0.3%, even if it rounds to the latter figure.&nbsp;<\/p>\n\n\n\n<p><strong>That also means that we were a whisker away from the monthly data rounding to 0.4%! <\/strong>&nbsp;[(329.793 \u2013 328.656) \/ 328.656 * 100 = 0.346%]<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"373\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/09\/image-38-1100x373.png\" alt=\"That also means that we were a whisker away from the monthly data rounding to 0.4%! \u00a0[(329.793 \u2013 328.656) \/ 328.656 * 100 = 0.346%]\" class=\"wp-image-207787 lazyload\" data-srcset=\"https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/image-38-1100x373.png 1100w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/image-38-700x237.png 700w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/image-38-300x102.png 300w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/image-38-768x261.png 768w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/image-38.png 1188w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/373;\" \/><\/figure>\n\n\n\n<p>Source: <a href=\"https:\/\/fred.stlouisfed.org\/release\/tables?rid=10&amp;eid=36714#snid=36718\">St. Louis Federal Reserve<\/a>. <em>Past performance is not indicative of future results.<\/em><\/p>\n\n\n\n<p>Using the data from the linked website above, we see that on a granular basis, Core CPI is moving in the wrong direction and so <a href=\"https:\/\/fred.stlouisfed.org\/series\/PCEPILFE\">&nbsp;is Core PCE<\/a>:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"763\" height=\"181\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/09\/Picture1-4.png\" alt=\"Using the data from the linked website above, we see that on a granular basis, Core CPI is moving in the wrong direction and so \u00a0is Core PCE:\" class=\"wp-image-207786 lazyload\" data-srcset=\"https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/Picture1-4.png 763w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/Picture1-4-700x166.png 700w, https:\/\/ibkrcampus.eu\/campus\/wp-content\/uploads\/sites\/3\/2025\/09\/Picture1-4-300x71.png 300w\" data-sizes=\"(max-width: 763px) 100vw, 763px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 763px; aspect-ratio: 763\/181;\" \/><\/figure>\n\n\n\n<p>Sources: <a href=\"https:\/\/fred.stlouisfed.org\/release\/tables?rid=10&amp;eid=36714#snid=36718\">St. Louis Federal Reserve<\/a>, Interactive Brokers. <em>Past performance is not indicative of future results.<\/em><\/p>\n\n\n\n<p>You might be thinking, \u201cbig deal\u201d?&nbsp; Well, if an even tinier change would have caused different rounding, would stocks have rallied like they are today.&nbsp; I think not.&nbsp; Also, it is important to put the <a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/files\/FOMC_LongerRunGoals.pdf\">FOMC\u2019s Statement on Longer Run Goals<\/a> into perspective.&nbsp; <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/careful-what-you-wish-for\/\">As we noted on Tuesday<\/a>, while investors understandably fixated on Chair Powell\u2019s emphasis upon the softening labor market, he also unveiled a revision to the FOMC mission that tied the Fed\u2019s inflation goal more tightly to 2%.&nbsp; It was 2%-ish before.&nbsp; Those numbers do not jibe with that goal.&nbsp;<\/p>\n\n\n\n<p>And by the way, despite the obvious perception that the Fed is understandably more focused at present upon the \u201cmaximum stable employment\u201d portion <a href=\"https:\/\/www.chicagofed.org\/research\/dual-mandate\/dual-mandate\">of the dual mandate<\/a> than the \u201cstable prices\u201d part,&nbsp; the statement of goals implies that they view stable prices as a prerequisite for stable employment.&nbsp; From the statement:<\/p>\n\n\n\n<p><em>The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve\u2019s statutory maximum employment and price stability mandates. <strong>The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee\u2019s ability to promote maximum employment<\/strong> in the face of significant economic disturbances. [emphasis added]<\/em><\/p>\n\n\n\n<p>Along those lines, some have attributed at least some of today\u2019s rally to today\u2019s higher than expected weekly jobless claims (263k vs. 237k expected).&nbsp; Fair enough \u2013 bond traders are using it as a reason to push yields lower, with 10-years flirting with 4%.&nbsp; That is indeed good for stocks.&nbsp; But I offer two reasons to curb that enthusiasm.&nbsp; First, continuing claims were unchanged from last week.&nbsp; That\u2019s hardly a negative.&nbsp; Second, if stock traders are thinking \u201cyay, more people got laid off,\u201d then it falls squarely into the \u201c<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/careful-what-you-wish-for\/\">careful what you wish for<\/a>\u201d territory.<\/p>\n\n\n\n<p>When I think in these terms, I am increasingly concerned that we are setting ourselves up for a significant \u201csell the news\u201d reaction next week.&nbsp; The Fed doesn\u2019t like surprising markets unless they absolutely need to, so we have no reason to think that a cut is not in the cards.&nbsp; But a \u201chawkish cut\u201d is a distinct possibility, with the messaging being something along the lines of \u201chere\u2019s the cut you expected, but don\u2019t expect too many more until we see that prices have stabilized.\u201d&nbsp; The market might be missing the tiny incremental increases in inflation, but it\u2019s very hard to imagine that the FOMC will.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stocks are in full-on rally mode this morning thanks to an \u201call-clear\u201d signal from the CPI report.  On a month-over-month basis (why look at a yearly change that has 11 months of old data?), we got a miss on the headline CPI but got an in line reading on Core CPI.  The latter is perceived as reinforcing the likelihood of a rate cut next week. But what few people seem to realize is that thanks to favorable rounding of the Core index, we were 0.004% away from a vastly different market reaction.<\/p>\n","protected":false},"author":4,"featured_media":206131,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[145,147,8,12,148,7],"tags":[],"contributors-categories":[149],"class_list":{"0":"post-207785","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-ibkr-market-insights","8":"category-north-america","9":"category-region","10":"category-securities","11":"category-text-articles","12":"category-traders-insight","13":"contributors-categories-interactive-brokers"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Today\u2019s Rally is Based on a Whisker | Traders&#039; Insight<\/title>\n<meta name=\"description\" content=\"Stocks are in full-on rally mode this morning thanks to an \u201call-clear\u201d signal from the CPI report. 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He has held numerous roles in the organization since joining Timber Hill, IBKR\u2019s predecessor, in 1995 as Equity Risk Manager and an options market maker. He developed and implemented automated trading strategies for stocks and options before moving into his current role. Steve has guest authored several columns in Barron\u2019s and made numerous live on Bloomberg TV and Radio, CNBC, Yahoo Finance, Fox Business, and several other media outlets several media outlets in North America, Asia, Australia, and the Middle East in addition to being quoted frequently in print and electronic media. 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