This chart shows S&P 500 rally could resume if inflation has peaked

Published Wed, Nov 9 202212:49 PM ESTUpdated Wed, Nov 9 20221:12 PM EST

If inflation has peaked, then U.S. stocks have bottomed, according to strategists at Clocktower Group —and that's exactly what they think has happened. There are a number of reasons the firm's strategy team believes that the consumer price index, which measures the price changes for a basket of consumer goods and services, is coming off its high. They then looked at the average S & P 500 return following peaks in the CPI since 1934, and found that the broad-market index rises. "Despite [Federal Reserve Chair Jerome Powell's] best efforts to talk down the FOMC step-down on November 2, it is difficult to see how the Fed maintains its hawkish pace considering the about-faces by a slew of DM [developed market] central banks over the course of the past two months," the strategists wrote. Among the reasons Clocktower strategists cite for the CPI peak is the National Federation of Independent Business survey showing "absolute destruction" of businesses' confidence in the ability to hike prices over the next three months. That is usually a good predictor of CPI movements, they said. They also said that wage growth can be robust and CPI can still fall, although they expect further easing of average hourly earnings. The latest CPI report, for October, is set to be released on Thursday. Economists are expecting 0.6% growth on a monthly basis and a 7.9% increase from the prior year, according to Dow Jones. Economists also predict core CPI, which excludes volatile food and energy prices, to gain 0.5% month over month. Inflation figures came in hotter than expected for September , with CPI rising 0.4% month over month —more than the 0.3% Dow Jones estimate. On a 12-month basis, it was up 8.2%, which is off its peak of around 9% in June. The S & P 500 , meanwhile, is up about 4% in the past month. It has closed higher the previous three sessions but was lower Wednesday . While Clocktower strategists believe the bottom is in, they are urging caution right now. "As investors await clarity on the Fed, they should hedge our bullishness by going long duration. That trade should work in either a 'Jay induces a Great Depression' or a 'Fed pivot' scenarios," they wrote. — Michael Bloom contributed reporting.