A really good but long article offering explanation as to how markets react to emerging economic news may be morphing from covid response times to a period more in tune with the economic cycle … https://www.marketwatch.com/story/inflation-data-jolted-stocks-and-bonds-this-will-decide-what-happens-next-63df42d1?mod=mw_latestnews … a short excerpt below.
[[[[[ A day after January’s hotter-than-expected consumer-price index drew a strong response from financial markets, investors and traders were questioning whether that knee-jerk reaction was justified or went a bit too far.
On Wednesday, equities finished higher following a sharp selloff in the previous session and buyers returned to the Treasury market, pushing most yields lower. Only a day ago, stocks and bonds sold off in tandem: the Dow Jones Industrial Average DJIA fell by 524.63 points or 1.4% for the largest one-day decline since March 22, 2023 and Treasury yields finished at their highest levels in months.
Perhaps the biggest reason why Tuesday’s initial market reaction to the CPI report was so strong was the realization that inflation is now tracking economic growth, according to some investors and economists. That’s in contrast to the so-called immaculate disinflation thesis that had prevailed at the start of 2024, in which price gains were supposed to ease further no matter how the economy performed, and had been one of the most important catalysts driving the Dow Jones and S&P 500 SPX to a series of records in the new year.
”Everyone was fairly optimistic that inflation was a thing of the past and then we got cold water thrown on that,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company in Milwaukee, which oversaw $280 billion in assets as of December.
…
”In other words, the immaculate disinflation theory is now being replaced in the minds of some market participants by the idea that as long as U.S. economic growth remains strong, so will inflation. That’s a turnaround from the previous line of thinking, in which inflation was seen as likely to keep easing despite a strong economy and labor market. ]]]]]
Dex
