After enjoying a downtrend since mid-Aug., bears who bet against the market lost 8.8%. The Nasdaq gained after the U.S. Bureau of Labor Statistics posted consumer price index figures. CPI rose by 7.7% year-on-year.
Markets treated the still-rising price of goods as good news. They infer that the Federal Reserve will pivot. This is unlikely. The central bank repeated many times in its last rate hike meeting that speculators should not make that assumption.
At a minimum, a 50 bps rate hike is lower than the 75 bps set in the last few meetings. The Fed funds rate matters most. It will stay at high levels. The technology sector’s relief rally rewarded speculators who bought shares on the dip. However, high interest rates decrease the attractiveness of holding risky assets.
Fortunately, market sentiment shifted from excessive bearishness to mild euphoria. Smart investors who bought cyclical semiconductor stocks might take profits. For example, Nvidia (NVDA) gained 15%, Texas Instruments (TXN) rose 10%, Qualcomm (QCOM) gained 13.8%, and AMD (AMD) gained 16.4% last week.
Fundamentals are no different after the rally. Growth firms will struggle with lower demand and excess inventory. A recession is becoming more likely as the economy slows.
Slower inflation rates are still a good development for stock markets.
