Inflation Slowdown – Equities Retreat Erasing Current Losses

Stock prices increased, suggesting that market indices might finish the week with a rise as investors assess the future of interest rates. Friday’s gains in the S&P 500 were 0.9%. Thursday saw a 0.3% drop in the benchmark index. The Nasdaq-100 technology index rose 1%, while Dow Jones Industrial Average futures climbed 0.6%.

Stocks soared, the dollar retreated, and bond yields fell last week due to a moderation in inflation. However, optimism that the Federal Reserve will dial back its aggressive interest-rate hikes has recently waned.

St. Louis Fed chief James Bullard’s hawkish comments knocked shares sharply lower yesterday. According to Louis Fed President James Bullard, interest rates must climb at least 5% to stabilize inflation. Markets adjusted their expectations for future US interest rate increases due to his words.

Analysts Predict Weaker Earnings Despite Cooler Inflation

Market experts, including Michael Wilson of Morgan Stanley, fear a further stock downturn before a recovery in the second half. The outlook for next year is more gloomy. According to the team at Bank of America, Profits will remain under strain even as inflation declines. They suggest keeping bonds until the first half of 2023. Stocks will become more appealing in the remaining six months of that year.

According to some money managers, a downturn in analysts’ expectations for income over the next year poses a distinct danger to the stock market’s recent rally. Treasury yields have inverted, raising the stakes even higher. Government borrowing costs exceed longer-term interest rates. That’s typically how it works in the real world: dynamic predicts the downturn.

European Equities Surge

Following a sell-off on Thursday, European markets rebounded. Shares of utilities and car manufacturers lifted the Stoxx Europe 600 by 1.2%. Falling natural-gas costs and fewer worries about energy shortages this winter have boosted shares in the area since late September.