On January 15, a relatively mild U.S. consumer price inflation report prompted a strong relief rally in stocks and bonds. However, traders and investors caution that concerns about inflation persist.
Ongoing uncertainties about future Federal Reserve interest rate decisions and President Donald Trump's policies on taxes and tariffs continue to loom over the market, according to analysts.
Art Hogan, a market strategist at B. Riley Wealth, highlighted, "The factors that have been pushing rates up and pressuring stocks are still present. We are uncertain about the extent of tariffs and policy moves that could impact inflation or growth."
Although overall inflation climbed faster than expected, the market focused on the core Consumer Price Index (CPI), which excludes food and energy prices. In December, core CPI rose by 0.2%, following four consecutive months of 0.3% increases.
Stocks surged after the CPI release, with the S&P 500 index jumping 1.8%. Meanwhile, the 10-year Treasury yield rebounded to 4.66% after declining post the latest...
Steve Sosnick, a market strategist at Interactive Brokers, remarked, "This slightly exceeded expectations, but traders react strongly to any positive news. Despite being somewhat magnified by recent negativity, we must view this number and response positively."
Yields had risen significantly in recent weeks following the Fed's updated rate cut outlook in December, which projected higher inflation for 2025 than previously anticipated.
Jeff Weniger, head of equity strategy at WisdomTree Inc., mentioned, "Before the CPI release, there were murmurs that we might see a rate hike."
Although the data indicated a lessening of inflation, concerns over the impact of Trump's policies on inflation persist. Market participants expressed heightened uncertainty in anticipation of the new administration's policies.
Acknowledging that progress in inflation may be gradual and uneven, Rick Rieder, BlackRock’s chief investment officer of global fixed income, cautioned about potential core goods inflation due to changes in tariffs and trade policies.
Anticipating increasing market volatility, Kevin Flanagan, head of fixed income strategy at WisdomTree, suggested that daily fluctuations of 10 to 15 basis points for the 10-year Treasury could become commonplace.
Following the data release, market expectations for the Fed's rate cut timeline shifted, with the possibility of a second cut by the end of the year now being considered. Tina Adatia, head of fixed income client portfolio management for Goldman Sachs Asset Management, emphasized the importance of continued positive inflation data for potential further easing by the Fed.