June 15th 2023, 12:22:24 am

(about 3 months ago)

Inflation slows down, giving Fed room not to hike

Share On

Inflation slows down, giving Fed room not to hike
US stock markets continue to perform well as investors call for the bull market’s start, especially after today’s US inflation report which showed signs of cooling down. S&P 500 and NASDAQ have climbed 13.52 and 28.81% year to date while the Canadian main Benchmark has advanced 3.51%. 
Last week Bank of Canada increased the interest rate by another 0.25% in a surprising move to 4.75% to narrow the gap with the US and now is expected to add another 0.25% by yearend. The Canadian inflation has proved to be stickier than expected and housing prices started to climb again. US Federal Reserve was also expected to add another 0.25% in this week’s meeting but today’s inflation report may lean toward not increasing the policy interest rate.
US inflation shows a 4% year-over-year increase in May, lower than expectations and the lowest level since March 2021. The core CPI increased 0.4% in May, in line with forecast.
The markets were already rallying on the back of the tech sector which is up 38% in 2023 with names like Nvidia skyrocketing. The bet on the lower inflation and Fed pausing added to the fuel and now investors are calling the end of the bear market.
Many still argue that the recent rally of the S&P 500 is mainly pushed by six mega-cap tech companies and the rest of the sectors are dealing with multiple contractions and earnings shrinking as the higher rates and inflation is eating into their bottom-line profits. This week is critical to decide the direction of the markets and whether the call on a bull market starts to materialize