Stock Market Outlook: Evaluating Inflation’s Impact
Investors, it’s time to talk about inflation. Even as we see the S&P 500 (SPY) hitting record highs, inflation is creeping back and could slow down the Fed’s plan for future rate cuts. And that’s not great news for stocks. Here’s the scoop: The economy is humming along, with the S&P 500 (SPY) reaching new heights. Small-cap stocks are also outperforming their larger peers in a big way this November.
Most signs point to more gains in the stock market. However, the recent halt in the decline of inflation raises questions about the Fed’s rate-cutting strategy, not just for the upcoming meeting on 12/18, but for 2025 as well.
So, let’s dive into the data the Fed is looking at before their next rate decision. This week, we got a peek at the Fed’s minutes from the November meeting, where they cut rates for a second time in a row. The Fed is sticking to a path of rate cuts, but not everyone thinks they’ll cut as aggressively as some expect. The recent inflation numbers play a big role in their decision-making, along with the threat of new tariffs from the Trump administration that could boost inflation.
Right now, the market predicts a 60% chance of a 25 basis point rate cut at the December 18th meeting. But that might be too optimistic given the lackluster inflation data. Still, upcoming reports could change that outlook. For example, the recent PCE report on Wednesday showed Core PCE rising to 2.8% compared to last month, which is not a good sign. If that trend continues, we’re looking at a 3.6% annual inflation rate, moving in the wrong direction. Keep an eye on how these reports shape the Fed’s decisions moving forward.
