The CPI showed declining inflation and the US stock market reacted euphorically. What does it mean and what to expect now?
The US CPI data released on June 13 showed not only a decrease from the previous reading, but also a little below expectations. This event provided the market with an important input regarding the outlook for the interest rate future and influenced the forecasts on the balance sheet of US companies.
As a result, most equity sectors recorded a positive stock market session, with the exception of the utilities sector. It is also interesting to note the recovery of many companies that had been considered outside by various analysts. As usual, companies in the technology sector continue to lead the positive trend, leading to a growth parallel and gradual of the S&P 500 index, which seems increasingly determined to continue its upward run, completely ignoring the warnings from some analysts who have long been very skeptical of this market anomaly.
In light of these data, what can we expect from the US stock market?
4% inflation: what does it mean economically?
If lowering inflation, as measured by the CPI, is the main cause of the boost to the stock market, it becomes necessary to analyze the different components of inflation to fully understand the implications of this cost reduction. Although the general cost index is contracting, much of this compression appears to be attributable to significant price declines in the energy sector.
In the United States, energy inflation is negative, unlike the other components which maintain a marked and influential presence on the general component, as indicated by the CPI. Indeed, core inflation has remained broadly stable, although it has increased annually.
On the other hand, other components of inflation give rise to concern, considered more "persistent", such as those of services, food, and goods, which remain largely positive. However, there is good news in the property market, where the indicator provided by Zillow, based on new leases signed each month, suggests that the peak in rental inflation has finally ended.
What to expect from the financial markets?
Expectations of a significant increase in interest rates have declined significantly and the Federal Reserve has opted for rate stabilization. The market is preparing for the possibility that an economic contraction may occur, albeit not a very deep one. caution remains at the heart of the strategies of many managers, who may view the equity market with distrust, in favor of favorable returns on the bonds. The contraction of the dollar has favored the growth of the S&P500, which seems to stabilize above 4300 points.
Original article published on Money.it Italy 2023-06-17 07:22:00. Original title: Inflazione in decrescita, mercati sempre più euforici
