US stock market could soar 25% on rally after inflation data
The latest better-than-expected data on US consumer prices in October could mark a turning point in the US Federal Reserve’s (FRS) fight against high inflation and lead to a significant recovery in the stock market, Fundstrat experts believe.
Experts predict that the current rally on Wall Street could last 50 days and allow the S&P 500 to soar by 25%, as investors expect the most aggressive pace of monetary tightening by the Fed is over.
In particular, analysts draw attention to a “significant slowdown” in consumer price growth on a monthly basis, weakening inflation in the segment of durable goods and lower prices for medical insurance.
These signs indicate that inflation could “substantially slow down” in the coming months, said Tom Lee, director of research at Fundstrat, quoted by MarketWatch.
According to the expert, if the favorable situation persists, core inflation will increase by 0.3% in monthly terms within “three to four months.”
Consumer prices excluding the cost of food and energy (Core CPI index) in October rose by 0.3% in monthly terms, which is lower than experts expected. At the same time, in September the increase was 0.6%.
Lee notes that a slowdown in inflation could also boost the US stock market as the economy avoids a deep recession.
According to him, the likelihood of a pause in the tightening of the Fed’s monetary policy after December has increased against the background of fresh data on inflation.
Market analysts are closely watching for signs that could indicate that the Fed will either pause its aggressive rate hikes or even begin to move towards lowering rates.
The Fed has raised rates by 75 basis points in the last four meetings, now the rate is 3.75-4%. The regulator closely monitors data on the growth rate of consumer prices, which are one of the important factors in making decisions regarding monetary policy. The inflation target for the Fed is 2%.
The next meeting of the Fed will take place on December 13-14. Markets are pricing in a 50 basis point hike in interest rates at the next meeting.