The HCM-BuyLine® turned positive on a short-and-intermediate-term basis this week, which has prompted us to start taking some smaller positions and adding exposure to stocks. The long-term trend of the HCM-BuyLine® is still in a downtrend, but optimism has at least stuck its head up. Tight stops should be adhered to, and volatility should be expected. Could this be the beginning of a turn, or just a short-term bear market rally? Only time will tell.

Last week’s Producer Price Index (PPI) also showed signs that inflation may be cooling. The softer-than-expected October PPI number was news that may further boost investor confidence. The year-over-year number was up 8% vs. an 8.3% estimate; when you strip out volatile food and energy prices, PPI went up 6.2% year-over-year vs. a 7.2% estimate.

Overall, the data is encouraging and leans toward the possibility that perhaps the Fed may slow its pace of interest rate hikes. As of now, the CME Group’s FedWatch tool shows an 80.6% likelihood of a 50 basis point rate hike when the Fed meets on December 14. But there’s a long way to go before the Fed thinks about pausing rate hikes. Inflation is still here and needs to be a lot closer to the Fed’s target rate of 2-3% before we see any pause in rate hikes. Until then, it’s likely that rates will continue moving higher.

One interesting dynamic coming from the stock market’s reaction to a cooling inflation number is how the stock market tends to move up strongly on encouraging news. The Fed’s goal is to bring down inflation by raising interest rates. This is expected to slow down growth, which, in turn, should cool the stock market. But if equities move up sharply on news of the cooling inflation, could it impact the pace of future interest rate hikes? That may be something to keep an eye out for in future Fed meetings.