Stocks rise on inflation data and continue in a bull market
Shares on Wall Street pushed further into bull market territory during early trading on Tuesday, rising after new data showed inflation continues to slow.
The consumer price index for May was initially viewed by investors as subdued enough to cause the Federal Reserve to postpone another rate hike this week. The central bank will announce a decision on Wednesday.
The S&P 500 stock index rose 0.6 percent in early morning trading to its highest level since January 2022, continuing a strong rally since the index fell to an all-time low in October. The S&P 500 is up more than 20 percent from its 2022 low, a gain that by many definitions crosses the threshold for a bull market, a sign of a new phase of exuberance in the markets.
Slowing inflation is seen by investors and economists as limiting the need for the Federal Reserve to keep raising interest rates, which has increased borrowing costs for consumers and businesses and weighed on the broader stock market. Some policymakers had already suggested that the Fed might not raise rates again this month, and after the latest inflation data, the chances of a hike were all but wiped out.
Not all investors agree on the best way to define a bull market, especially when concerns remain about the long-term trajectory of the U.S. economy. The S&P 500 is still about 9 percent off its all-time high, reached at the start of 2022, just before fears of rising interest rates in response to accelerating inflation kicked in and dragged the index to a loss of about 20 percent.
“With inflation stubbornly high, we see the business cycle ultimately ending in a recession,” said Alexandra Wilson-Elizondo, deputy chief investment officer of multi-asset solutions at Goldman Sachs Asset Management.
Investor exuberance is nevertheless increasing. The Russell 2000 index, which tracks smaller companies in the United States that are more exposed to the domestic economy, is up more than 8 percent this month and rose more than 1 percent in response to the inflation report.
The index trended sideways for much of the year, and even after the rally, it remains less than 15 percent above its 12-month low.
However, the recent rise in the Russell 2000 still indicates that the stock market rally is taking hold as inflation cools and the economy remains resilient to the potentially damaging effects that higher interest rates could bring.
“We are just over two weeks away from the start of the third quarter. This makes sense because there was near consensus at the beginning of the year that this was when the recession would begin,” said Ms. Wilson-Elizondo. “Today the recession has not yet arrived.”