Going into last week, what mattered most for markets, at least in the near term, was whether the Consumer Price Index (CPI) data and the Federal Reserve decision and outlook would make a September rate cut more likely (bullish for stocks) or less likely (bearish for stocks). On Wednesday, we got the answer to both queries, and the net result was that a September rate cut is more likely, explains Jim Woods, editor of Successful Investing.
We know that because stocks spiked to new highs on Wednesday, as CPI and the Fed were legitimate positives for stocks — and they rallied accordingly. However, it wasn’t the Fed that made a September cut more likely. Rather, it was the CPI report.
S&P 500 ETF Trust (SPY)
The move higher in stocks on Wednesday morning in reaction to the better-than-expected CPI print overshadowed what I would call a rather “noisy” and mixed message from the Fed and Chairman Jay Powell in his press conference. And so, as I’ve been telling you of late, last week demonstrates that economic data is far more important than “Fed speak” in 2024.
Indeed, throughout this year (which is now nearly half over!), I’ve stressed that economic data will be more important than Fed speak or even Fed policy. That was proven by the cool CPI (which showed a continuation of disinflation).
Yet what is more important to contemplate here is the big picture. It tells us that the bullish mantra for stocks in 2024, i.e., 1) stable growth, 2) ongoing disinflation, 3) sooner-than-later Fed rate cuts and 4) Artificial Intelligence (AI) enthusiasm, is still in full effect.
Last week, those four bullish mantra components were reinforced, and the result was the S&P 500 breaching new all-time highs. However, now the stakes have been raised on the ultimate decider of whether this bull market lasts — and that is economic growth. If economic growth metrics begin to stumble, so too will the bulls.
