Market Musings 110323: Focus on the Fed and Employment

Market Musings 110323:Focus on the Fed and Employment

Watch next week’s US CPI report closely on March 14

Summary

Historically peak US inflation has led to higher stock prices over the last 14 inflation cycles since 1945.The Samp;P 500 index has risen around 12% following a peak in US inflation over the following 18 months.This time around US CPI inflation peaked in June 2022, at 9.1%. As of January 2023, it has fallen to 6.4%. Cleveland Fed nowcast model predicts 6.2% overall CPI for February 23According to the Cleveland Fed, the 1-year expected inflation rate has fallen sharply from 4% to just 2.6% as of February.Since June 2022, the Samp;P 500 index has only risen about 1%, to date. Should we follow this historical inflation cycle average, we should see another 10% rise in the Samp;P over the next 9 to 10 months.Watch the US 2-year bond yield for clues. This bond yield peaked at 5.1% last week. But at the end of the week, this yield had already fallen back to 4.6%. Preference within stocks for Europe, UK and emerging market stocks rather...