The stock market has recorded a notable rally over the past few days. One of the top factors behind this is the latest inflation data that depicted a favorable macro environment. The Federal Reserve can now avoid raising interest rates, a move attributed to the bloodbath seen in the market.
Nasdaq resumes a bull run
Sameer Samana, a senior global market strategist at Wells Fargo, believes the rally witnessed this week is “premature.” While speaking to Marketwatch, Samana said that the inflation levels were still high despite easing last month.
According to the strategist, the core inflation levels would remain high as sectors like wage growth and the cost of housing continue to be in a crisis. These factors would continue bugging the Federal Reserve to take action and curb a further crisis for investors.
On Wednesday, stocks within the US recorded a notable rally. The Nasdaq Composite index entered a bull run as investors portrayed renewed faith that the market would recover from the downtrend. However, Samana believes that investors should still be cautious. He expects the economy to enter a recession in Q2 2022 but added that equity markets were not reflecting this upcoming recession.
Samana added that companies were better placed to make it through the next recession than consumers. Consumers were already dealing with the high borrowing costs and the rising inflation levels.
On the other hand, the slowing inflation data is also a positive factor for the crypto market. In recent months, the correlation between the stock and crypto markets has increased. As stock markets recover, more people tend to buy Bitcoin as they become optimistic that the asset will also gain. The increased correlation comes amid the increased institutional adoption of Bitcoin.
US inflation data in July
In July, inflation levels in the US remained unchanged after gaining 1.3% in June, and it now stands at an annual rate of 8.5%, according to the US Bureau of Labor Statistics released a report on Wednesday.
Additionally, the core CPI that does not include food and energy increased by 0.3% after slowing down after a 0.7% gain in June. Previous predictions by Wall Street companies had predicted that the CPI would increase by 0.2% in July and that the core inflation would increase by 0.5%.
The recent data on inflation has created optimism in the market, and company valuations could continue increasing. However, most analysts agree that it was too early to provide sentiments about the market.
The Fed is looking at taming inflation below the current levels. Moreover, the global macro-economic climate also points toward a hostile economic climate. The Russia-Ukraine tensions are still high. The situation between US and China over Taiwan has also added to a worsening geopolitical climate. Therefore, there are concerns that the market will ignore the Federal Reserve’s work to lower inflation by raising the interest rates.
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