Financial markets grabbed hold of Tuesday’s U.S. softer-than-expected producer-price report and ran with it, driven by the underlying narrative that inflation may have hit its peak and is only set to ease further from here.Investors and traders can hardly be blamed for cheering Tuesday’s developments considering the euphoria that accompanied last Thursday’s smaller-than-anticipated gains in the consumer-price index, which sent the Dow Jones Industrial Average up by 1,201.
Of all the possible scenarios that could play out, the one in which inflation falls but doesn’t head toward 2% fast enough is perhaps the most underappreciated risk in financial markets, according to money managers, economists, and strategists interviewed by MarketWatch.
“I’m still advising our individual clients to maintain a risk-off approach in their portfolios and to be still invested in the market, but to be more focused on quality stocks like utilities and healthcare and to stay away from technology names or small caps with no solid earnings history,” Sterner said via phone on Tuesday.Investors initially cheered the latest sign of easing price pressures in the October producer-price index, which rose a scant 0.2%, by sending all three major U.S.
The last time financial markets grabbed hold of the peak-inflation narrative was in August, after July’s CPI report and PPI report produced downside surprises. Producer prices resumed their rises and although the annual headline CPI rate has drifted lower, other elements within September’s consumer-price index pointed to persistent inflation and even October’s CPI is not yet enough to move the needle.
See also: A 6% fed-funds rate? Some investors say the risk is there, bringing the prospect of more painful Treasury selloffs
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