The latest US CPI data shows the fight against inflation will be long and hard. But that’s not how equity markets are positioned.
There was a lot riding on the US inflation data released early on Wednesday morning – this was supposed to be the CPI print that would help decide which part of the market had it right.
Equity investors followed similar patterns, too. Markets initially sold off, then rose, then fell again as various Fed officials warned inflation looked stickier and the central bank would need to stay the course. But like a beach ball being held under the waves, equity investors just wouldn’t stay submerged and the SP 500 index rallied from being down 0.7 per cent shortly after the CPI data was released to close flat.
But the data does remind us how difficult the task of bringing inflation back to the Fed’s 2 per cent target will be. For example, the narrative has long been that goods inflation that built up during the pandemic spendathon has peaked and will keep falling, while services inflation will be extremely sticky. But core goods inflation actually rose month-on-month for the first time since last September.
Fundies are generally less pessimistic about the world, with the survey showing fears of a US recession plunging and a bullish move into Chinese stocks. But cash holdings are still above 5 per cent and 66 per cent believe we’re in a bear market rally.
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