It’s yet another Federal Reserve decision week, which means investors are bracing for some volatility in the coming days. However, with stocks up today, many appear to be taking a more bullish view of where the market may be headed from here.
One of the key drivers of today’s move appears to be the recently released November CPI data. Notably, these data came in roughly in line with expectations (slightly below on certain metrics), providing more credence to the idea that the Fed’s rate hikes are having their desired effect.
As a result of this news, bond yields have declined slightly, with the closely-watched U.S. 10-year Treasury yield remaining lower following the print (though rates have ticked up in the past few hours).
Let’s dive into what this report showed and why investors are taking an increasingly optimistic view of the markets right now.
Why Are Stocks Up Today?
Stocks are seeing continued strong buying interest today, partly on continued interest rate stabilization but also on the view that inflation appears to be on the right path. November CPI data showed prices rose 3.1% year-over-year, with economists largely predicting a 3.2% rise. Although this number has increased by 0.1% since last month, it is still inching towards a 2% inflation rate, which is a positive sign for investments with higher risk profiles. At least, that appears to be the prevailing view right now.
Overall, the big question market participants are trying to answer right now is whether a soft landing is possible. And while a soft landing will likely require rate cuts before the economy cools too much, rate-cut bets have been scaled back in recent days. Thus, the stabilization of bond yields is an overall positive for the stock market.
Lower energy costs contributed to these better-than-expected numbers. However, stripping out energy and food, so-called “core” inflation did jump to 4% in November. That’s the first time the core number hasn’t declined, leading to some concern among certain experts.
To be clear, I’m not sure a soft landing is possible. Typically, the Fed (and the market) are reactionary to a certain extent. And while rate cuts are being priced in, it’s clear the Federal Reserve will do what it thinks is best to handle inflation within the context of employment. Thus, I think the next few months will likely be rocky despite today’s positive showing.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
