Economic Outlook Brightens as Inflation Concerns Ease
The latest consumer price index (CPI) report has brought a sense of relief to the market, as inflation numbers came in slightly better than expected. The CPI rose 0.4% in November, with a 2.9% increase over the past 12 months. While energy costs rose, the overall trend suggests a slower path of rate cuts this year, aligning with the Federal Reserve’s view.
Market Reaction: A Breath of Fresh Air
Stock index futures jumped, with the S&P 500 E-minis up 89 points, or 1.5%. The 10-year U.S. Treasury yield dropped 12.1 basis points to 4.667%, while the two-year yield fell 9.1 basis points to 4.274%. The dollar index weakened, down 0.4% to 108.76.
Experts Weigh In: A Mixed Bag
Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, notes that the report is “decent” and “beneficial,” as it shows the economy can do better and inflation can come down. Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Company, believes the report takes pressure off the Fed to raise rates in the near term. However, Brian Jacobsen, Chief Economist at Annex Wealth Management, cautions that consumers are still feeling the pinch of high energy prices.
Core Inflation: A Silver Lining
While the top-line number may be disappointing, core inflation came in slightly lower than last month. Peter Cardillo, Chief Market Economist at Spartan Capital Securities, notes that this is the good news. Oliver Pursche, Senior Vice President at Wealthspire Advisors, agrees that the report doesn’t change the outlook for inflation, but the market reaction suggests a pivot back to the possibility of rate cuts.
A Goldilocks Scenario?
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, believes the data presents a “Goldilocks scenario” where strong corporate earnings, a resilient economy, and lower inflation create a positive environment for investors. Tina Adatia, Head of Fixed Income Client Portfolio Management at Goldman Sachs Asset Management, notes that the softer-than-expected core CPI reading should alleviate pressure on stock and bond markets.
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