Stock markets lit up yesterday after a few days of selling. Nasdaq (QQQ) added 1.54%, led by the usual A.I. and magnificent seven stocks, while the S&P 500 (SPY) added 1.12%. The U.S. government posted consumer price index figures that were higher than expected. Inflation is running at nearly 4%, close to double the Federal Reserve’s 2.0% target.
Markets interpreted the mildly hot inflation report to permit the Fed to cut interest rates. This view is harmful to consumers. Rate cuts would stimulate the economy, reigniting inflation and raising shelter costs. Shelter is already a large part of the CPI report.
The iShares 20+ Year Treasury Bond ETF (TLT) backed down after the report, falling by 0.84% on Tuesday.
JPMorgan Chase (JPM) CEO Jamie Dimon said the Fed should not hurry to lower interest rates by June. Instead, the central bank should preserve its credibility. Stock markets disagree. Bank stocks like B of A (BAC), Citigroup (C), and Wells Fargo (WFC) are close to their 52-week highs.
In expectation of rate cuts, tech companies like Meta Platforms (META) are nearing $500, while Amazon (AMZN) is ready to break out to a new high. Only Apple (AAPL) reflects reality. The stock trades below 27 times earnings and down by 10% year-to-date. Alphabet (GOOG), which bounced from $132 to $138.50, is even cheaper. Its online ad revenue would rise if the Fed stimulated the economy with rate cuts.
