What happened
The market soared higher today after investors got a much better October inflation report than economists had been projecting, making many think the Federal Reserve can soon pivot.
Shares of the payment giants Visa (V 1.67%) and Mastercard (MA 1.83%) traded 5% and 5.7% higher, respectively, as of 11:43 a.m. ET today. Shares of the alternative investment management firm Blackstone (BX 2.56%) were up more than 11.5%.
So what
This morning, the U.S. Bureau of Labor Statistics reported the latest October data for the Consumer Price Index (CPI), which tracks the prices on a market basket of consumer goods and services.
The CPI came in 0.4% higher from September and was 7.7% higher year over year. Economists had been projecting a 0.6% monthly rise and the CPI to come in 7.9% higher year over year.
Image source: Getty Images.
Specifically, the fall in prices of used vehicles, food, and medical and transportation services helped slow the growth of the CPI. I also think the dip in used car and food prices shows some pretty tangible proof that the Fed's interest rate hikes this year are starting to cool the economy.
If the Fed sees enough proof that inflation is slowing it will likely be able to slow the pace of its interest rate hikes after having just done four consecutive 0.75-percentage-point rate hikes. As of this writing, more than 80% of market participants expected the Fed to move forward with a half-point hike at its December meeting, according to the CME Group's FedWatch tool, which looks at futures data on interest rates.
News of a Fed pivot will be welcome for Visa and Mastercard, the two largest payment rails in the world. Visa and Mastercard are actually considered good stocks to hedge inflation with because they earn fees on transactions, so the higher the transaction the higher the fee. However, the Fed's aggressive rate hikes have many economists and investors believing that there will be a recession next year.
If consumer spending declines, that would hurt Visa and Mastercard because it would reduce volume across their networks. The sooner the Fed can end its rate hikes, the less likely there will be a recession. While a recession might be inevitable at this point there is still a question of how severe it could be.
NYSE: MA
Key Data Points
Blackstone has actually been operating pretty well this year, as investors have been ditching the stock market and heading for alternative investments like real estate, which has helped grow Blackstone's assets under management. But the market has not rewarded the stock for this growth. Slower interest rate hikes could, however, clear up concerns about how some of its investments like real estate might perform in the future.
Now what
Obviously, slowing inflation and a potential Fed pivot are good for the entire market, but I definitely think it can help all three of these stocks individually as well.
Visa and Mastercard will benefit if consumer spending doesn't tank in a potential recession next year, while Blackstone's investments are better off as well, especially if the real estate market stays healthy. I think all three stocks are buys.
