Inflation Might Be Transitory After All. These Stocks Could Be Bargains.

That wasn’t the expected conclusion from November’s consumer-price-index report, which came in a bit stronger than expected. Consumer prices rose 0.8% in November from October, topping forecasts for 0.7% while climbing 6.8% year over year, the highest rate since 1982. It was the blowout, superhot inflation number that everyone was expecting—and it was met with a shrug.

The major indexes, for their part, rose a touch on Friday to finish what turned out to be a fantastic week: The

S&P 500
gained 3.8% to hit a new high, while the

Dow Jones Industrial Average
rose 4.0% and the

Nasdaq Composite
gained 3.6%.

But nowhere was the yawn bigger than in the bond market. The 10-year Treasury yield rose 0.001 percentage point to 1.487% on Friday, while the two-year yield slipped to 0.660%. Even the amount of inflation priced into Treasury inflation-protected securities declined. The bond market was sending a message, and it wasn’t one most people, fixated on the inflation rate, expected to hear: that inflation was nothing to worry about.

Of course, that contradicts what Federal Reserve Chairman Jerome Powell told Congress on Dec. 1, when he changed course and conceded that inflation, which has been running well above the Fed’s target, may not be a temporary phenomenon. A joker might have suggested that Powell’s capitulation was a sign that inflation was peaking. The bond market’s reaction suggests that it’s no joke. “The bond market is starting to tell you that there is not this urgency to raise rates quite as much,” says Andrew Slimmon, senior portfolio manager at Morgan Stanley Asset Management. “And that’s leading me to rethink how our portfolios are positioned.”

Even before November’s CPI was released, there were signs that inflation might be peaking. Commodities are a big part of inflation, and almost all of them have started falling from their peaks. David Rosenberg of Rosenberg Research tracks 30 commodities, including tin, wheat, gasoline, and, um,…


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