Fresh statistical data on the dynamics of consumer prices in the U.S. in October, which were better than expected, may indicate a turning point in the fight of the U.S. Federal Reserve (Fed) with high inflation and lead to a significant rise in the stock market, experts believe Fundstrat.
Experts predict that the current rally on Wall Street could last 50 days and allow the indicator S & P 500 to soar by 25%, as investors expect that the most aggressive pace of tightening monetary policy by the Fed is over.
This includes analysts pointing to a “significant slowdown” in consumer price growth on a monthly basis, weakening inflation in the durable goods segment and lower health insurance prices.
These signs indicate that inflation could “significantly slow down” in the coming months, said Fundstrat Research Director Tom Lee, quoted by MarketWatch.
According to the expert, if the situation remains favorable, core inflation will increase by 0.3% on a monthly basis within “three to four months.
Consumer prices, excluding food and energy costs (Core CPI), rose by 0.3% on a month-on-month basis in October, which is lower than experts expected. At the same time, the increase in September was 0.6%.
Lee notes that a slowdown in inflation could also help the U.S. stock market grow as the economy avoids a deep recession.
According to him, the likelihood of a pause in the Federal Reserve’s tightening of monetary policy after December has increased on the back of fresh data on inflation.
Market analysts are closely watching for signs that could indicate the Fed will either take a pause in aggressive rate hikes or even begin leaning lower.
The Fed has raised rates by 75 basis points in its last four meetings, now at 3.75-4%. The regulator is closely watching the data on the growth rate of consumer prices, which is one of the important factors in making decisions about monetary policy. The Fed’s inflation target is 2%.
The Fed’s next meeting is December 13-14. Markets are pricing in the current interest rate hike of 50 basis points at the next meeting.
