Maybe the worst might be behind us
In the second week of November 2022, American markets found a rare moment of collective relief when inflation data arrived softer than expected, stirring hopes that the Federal Reserve's long campaign of rate hikes might be nearing its ceiling. Wall Street's Thursday surge — its strongest single-day performance in over two years — carried the S&P 500 toward one of its best weeks since summer, even as the broader economy remained fragile and uncertain. Yet the week's optimism was shadowed by a parallel collapse in the crypto world, where the bankruptcy of FTX reminded investors that not all storms pass so gently.
- A single inflation report rewrote the mood of an entire market, sending the S&P 500 up 5.5% in one day — its best performance since the early pandemic shock of 2020.
- Traders rapidly recalibrated their expectations for the Fed's rate ceiling, shifting from a feared peak of 5.50% down toward a more tolerable 4.75–5%, easing pressure on stocks and borrowing costs alike.
- China's quiet loosening of COVID restrictions sent a secondary wave of optimism through global markets, lifting oil prices and sending casino and luxury brand stocks sharply higher.
- Beneath the rally, the crypto sector was fracturing — FTX's bankruptcy filing triggered DOJ and SEC investigations, and Bitcoin's collapse to $16,700 from a year-ago high near $69,000 signaled a crisis of systemic confidence.
- By Friday, the week's gains were holding but not growing, with markets pausing to absorb what the inflation shift truly meant for the months ahead.
Wall Street closed a remarkable week on cautious but genuine optimism, carried by a Thursday rally that had stunned traders when inflation data showed price growth cooling faster than economists had predicted. The S&P 500 surged 5.5% that day — its best single-session gain since the spring of 2020 — and by Friday the index was on pace for a 5% weekly gain, its strongest since June.
The inflation report did more than lift stock prices. It shifted the calculus around the Federal Reserve's rate-hiking path. Where traders had recently braced for rates climbing as high as 5.50%, by Friday the consensus had softened toward a peak of around 4.75% to 5% in early 2023. A University of Michigan survey added quiet reassurance: long-term inflation expectations remained anchored near 3%, within the narrow band they'd held for most of the past year — exactly the kind of stability the Fed had been working to preserve.
Global tailwinds added to the mood. China's relaxation of COVID restrictions lifted hopes for renewed economic activity in the world's second-largest economy, pushing U.S. crude up 2.8% to nearly $89 a barrel and sending shares of casino operators and luxury brands sharply higher. Wynn Resorts and Las Vegas Sands each gained more than 5%, while Tapestry and Ralph Lauren climbed over 6% after reporting better-than-expected earnings.
The week's traditional market gains stood in stark contrast to the wreckage unfolding in cryptocurrency. Bitcoin fell 5.8% to around $16,700 — a collapse from the nearly $69,000 it had reached just a year earlier. The cause was the implosion of FTX, one of crypto's largest exchanges, which filed for bankruptcy after a customer bank run exposed deep questions about its financial health. With the DOJ and SEC now investigating the platform and its founder, industry voices warned that FTX's failure could corrode trust across the entire crypto ecosystem — a sector already worn down by fraud and regulatory pressure.
Wall Street closed out the week riding the momentum of a stunning Thursday rally, one that hinged on a single piece of good news: American inflation had cooled faster than anyone expected. The S&P 500 had jumped 5.5% that day—its best performance since the spring of 2020—and on Friday the market was still digesting what that might mean for the Federal Reserve's plans to keep raising interest rates.
By midday Friday, the gains were holding but not expanding. The S&P 500 sat nearly flat, caught between small gains and small losses. The Dow Jones had given back some ground, dropping 283 points to 33,431, while the Nasdaq managed a modest 0.4% climb. Yet the week as a whole was shaping up to be a strong one—the S&P 500 was tracking toward its third weekly gain in four weeks, with a 5% jump that would mark its best week since June.
The inflation report had been the catalyst. When the data landed Thursday showing that price growth had slowed more than economists had predicted, it sparked a cascade of hope through trading floors. If inflation was finally cooling, the thinking went, maybe the Federal Reserve wouldn't need to keep hammering interest rates higher at the same punishing pace. Rate hikes are a blunt instrument—they slow the economy, they weigh on corporate profits, they drag down stock prices. They had been the main reason Wall Street had struggled all year. The possibility that the worst might be behind us was intoxicating.
But inflation expectations matter as much as inflation itself. If households and businesses start believing that prices will stay high in the future, they accelerate their spending and their hiring, which actually makes inflation worse—a vicious cycle the Federal Reserve has been desperate to avoid. On Friday, a preliminary survey from the University of Michigan offered some reassurance. Households expected inflation to run at 5.1% over the next year, up slightly from 5% a month earlier, but long-term expectations had ticked up only to 3%, still within the narrow band where they'd been holding for 15 of the last 16 months. The Fed was watching these numbers closely, and so far, they weren't flashing red.
The Fed itself had already raised its benchmark interest rate to a range of 3.75% to 4%, up from near zero in March. The question now was how much higher it would go. A week earlier, traders had been bracing for rates to climb as high as 5.25% to 5.50%. By Friday, the betting had shifted. According to CME Group, traders were increasingly expecting the rate to peak somewhere around 4.75% to 5% by early next year—a lower ceiling that would be less painful for markets and the broader economy.
Other forces were also lifting sentiment. China had begun relaxing some of its strict anti-COVID lockdown policies, a move that raised hopes for stronger economic growth in the world's second-largest economy. That optimism rippled outward. Oil prices climbed, with U.S. crude gaining 2.8% to close at $88.87 a barrel. Companies with heavy exposure to China and the Asia-Pacific region surged. Wynn Resorts jumped 6.9%, and Las Vegas Sands climbed 5.7%. Tapestry and Ralph Lauren, both of which had reported better-than-expected profits for the latest quarter, each gained more than 6%. Health care stocks, by contrast, stumbled—Cigna fell 9.2% and Elevance Health dropped 7.4%.
But the week's gains in traditional markets stood in sharp contrast to what was happening in cryptocurrency. Bitcoin had plummeted 5.8% to around $16,700, a far cry from the nearly $69,000 it had commanded almost exactly a year earlier. The crypto sector was reeling from the implosion of FTX, one of the industry's largest trading platforms, which had filed for bankruptcy protection after customers rushed to withdraw their funds amid concerns about the exchange's financial health. The company and its founder were now under investigation by the Department of Justice and the Securities and Exchange Commission. Rivals in the industry were warning that FTX's failure could shake confidence in the entire crypto ecosystem. For a sector already battered by fraud scandals and regulatory scrutiny, the damage was compounding.
Citas Notables
Traders increasingly betting that the rate could top out around 4.75% to 5% by early next year, down from expectations a week earlier of 5.25% to 5.50%— CME Group analysis
Rivals warned that FTX's failure could dent confidence in the entire crypto system— Cryptocurrency industry observers
La Conversación del Hearth Otra perspectiva de la historia
So the market rallied hard on Thursday because inflation came in lower than expected. But Friday it was mixed. Why didn't the good news carry through?
Because markets don't move on one day of data. By Friday, traders were already pricing in what they thought the Fed would do next. The question shifted from "is inflation cooling?" to "how much will the Fed actually cut back on rate hikes?" That's a more complicated calculation.
And what did they decide?
That the Fed might not have to go as high as they'd feared a week before. Instead of 5.25% to 5.50%, traders started betting on 4.75% to 5%. That's still a lot of pain, but less than it could have been.
What about China relaxing COVID rules? That seems like a separate piece of good news.
It is, but it's also a reminder of how interconnected everything is. China's economy was being strangled by lockdowns. If it opens up, it buys more oil, it travels more, it needs more goods. That helps companies like casino operators who depend on Chinese tourists. It's not just about China—it's about global growth.
And then FTX collapsed in the middle of all this.
Right. While stocks were celebrating inflation cooling and China opening up, the crypto world was imploding. FTX was one of the biggest exchanges, and it went under because people lost faith in it. Now the SEC and DOJ are investigating, and everyone's wondering if the whole system is built on sand.
So you had two completely different stories playing out at the same time.
Exactly. For most of the economy, there was hope. For crypto, there was only contagion.