Issue 22 – The May Inflation Print Was an Unwelcome Surprise

The market has been choppy, boring and illiquid, obscuring the direction of the S&P 500. Over the past two weeks, the broad market has vacillated within a 100-point range, worrying about the course of inflation. Currently, investment banks are carrying fewer stocks in their risk asset portfolios because they are less eager to trade as specialists. Slower growth and soaring prices for necessities like shelter, food and energy, combined with the prospects for higher interest rates makes them uneasy. Traders were in a holding pattern until the Bureau of Labor released its June CPI report, which showed that inflation is running rampant, as are inflation expectations. Headline inflation shot up to a yearly increase of 8.6%, above consensus, with one-year inflation expectation rising to 5.4%. Nor were the May numbers on inflation fluky. The idea that peak inflation might not have arrived yet, and that the upward trajectory was still alive, was perceived as bad news. The inflation rate needs to turn down firmly for the stock market to perform bullishly: in the week ended June 10, the S&P 500 dropped 208 points, or 5.1%, to 3901.

 

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By Hubert Marleau

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By Hubert Marleau

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