US inflation drops to 7.7% as investors rush to buy stocks
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The easing inflation in the United States is leading to wealthy investors jumping back into the market again. However, these investors are still concerned about how long stocks will keep up the uptrend without other factors showing that the consumer price pressure will continue dropping.
Investment into US stocks surges
On Thursday, the S&P 500 index made a notable rally showing high demand from investors after a year of bearish sentiment. The index gained 5.5% when the CPI data was released, marking its most significant daily gain in more than two and a half years.
Analysts noted that the conversion of large cash positions into stocks likely caused this notable rally, and it could cause additional gains in equities and other risky assets. Nevertheless, there is still doubt whether the stock bear market was over.
Institutional investors’ exposure to stocks was notably low by the time the Thursday inflation report was released. This year, market volatility and high interest rates have made cash a more attractive asset.
The head of equity strategy at Wells Fargo Securities, Christopher Harvey, said that several institutional accounts were at risk, adding that as the year ends, individuals will start reacting to momentum as they seek opportunities.
Part of the recent rise in stocks was caused by bearish traders rushing to close their short positions.
Easing inflation levels
The consumer price index (CPI) data released on Thursday showed that consumer prices had increased at a lower-than-expected rate, pushing the annual increase below 8% to 7.7%. The data showed that inflation was easing, and the Federal Reserve is now more likely to slow down on interest rate hikes.
The chief executive at Tallbacken Capital Advisors notes that the S&P 500 could continue climbing in the wake of this data, but he still believes that risk assets are yet to recover fully. He added that more information was needed to confirm that inflation was indeed dropping.
Analysts at Capital Economics also said that the current relief of easing inflation would be replaced with fears of a looming global recession because of central banks’ aggressive monetary tightening policies.
The analysts noted that while equities received a boost after the CPI data was released, the uptrend would likely continue in the short term. However, investor concerns about the broader economic situation will eventually offset it.