Stocks soar as inflation cools

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Stocks on Wall Street advanced further into bull market territory in early trading on Tuesday, climbing after new data showed inflation is slowing.

The Consumer Price Index for May was initially read by investors as moderate enough to be sure that the Federal Reserve would hold off on another interest rate hike this week. The central bank will announce its decision on Wednesday.

The S&P 500-stock index rose 0.6 percent in early trade to its highest level since January of 2022 after the index fell to a low point in October. The S&P 500 has climbed more than 20 percent from that 2022 low, a gain that by many definitions breaches the threshold for a bull market, a marker of a new phase of euphoria in the markets.

Slower inflation is seen by investors and economists as limiting the Federal Reserve’s need to keep raising interest rates, which has raised borrowing costs for consumers and companies and weighed on the broader stock market. Some policy makers had already suggested the Fed might not raise rates again this month, and after the latest inflation data, the prospect of a hike was nearing its end.

Not all investors agree on the best way to define a bull market, especially as concerns remain over the long-term trajectory of the US economy. The S&P 500 is still about 9 percent off its record high it reached in early 2022, just before fears of rising interest rates in response to accelerating inflation dragged the index to losses of nearly 20 percent. .

“With inflation being very high, we see the business cycle eventually ending in a recession,” said Alexandra Wilson-Elizondo, deputy chief investment officer for multi-asset solutions at Goldman Sachs Asset Management.

Investor enthusiasm is still spreading. The Russell 2000 index, which tracks smaller companies in the United States that are more exposed to the domestic economy, rose more than 8 percent this month, and jumped more than 1 percent in response to the inflation report.

The index was trending horizontally for most of the year, and even after its rally, it remains less than 15 per cent below its 12-month low.

However, the recent rise of the Russell 2000 is still indicating a bullish momentum in the stock market as inflation calms and the economy remains resilient to the potentially damaging effects that higher interest rates could bring.

“We are just two weeks away from the start of the third quarter. This is meaningful because at the beginning of the year the almost unanimous view was that this would be when the recession would begin,” Ms. Wilson-Elizondo said. “Today, there is no recession.”

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