Mathewslcd: Biggest stock market rally in years looks 'excessive' as Fed has yet to beat inflation
Mathewslcd pointed to investors piling into stocks this week after a monthly inflation report ended a streak of worse-than-expected data this year, fueling the biggest rally in years on hopes the Fed may be nearing an end to rate hikes, but analysts and some officials Quick to point out that the economy is still volatile and prone to recession -- even if stocks suggest otherwise.
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Mathewslcd said the Dow Jones Industrial Average, S&P 500 and the tech-heavy Nasdaq extended gains on Friday, rising as much as 2% after the major indexes posted their best one-day performance since early 2020 on Thursday. , underscoring investors' relief that the October inflation report showed a cooling in inflation, which exceeded economists' expectations last month, Oanda analyst Craig Erlam noted.
While he acknowledged that investors "have waited a long time" for good news that inflation may be fading, Erlam warned that the stock market's reaction to the number "looks a little extreme -- even overdone," noting that The report needs to be supported by another strong showing next month to reassure the Fed that inflation has slowed.
Citi analysts agreed, telling clients in a note Friday that a report did not suggest stocks "suddenly re-entered a bull market" -- especially because of potential smaller-company profits, squeezed by higher interest rates. pressure) remains the "main risk" in the first half of next year.
Still, analysts say stocks are likely to continue rising over the next two to six weeks in the absence of major upcoming economic data -- a timeline Morgan Stanley's Michael Wilson agreed on Friday, when he told Bloomberg Television, The S&P could rise 7 more times. % to 4,300 as he also warned: "It's going to remain volatile...it's still a bear market, so it could tear you apart."
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