12.08.2022 – Suddenly, it’s a bull market again: A weak consumer price index has swept aside interest rate fears. And already many are afraid of missing out: Fear Of Missing Out (FOMO) has lifted high-tech stocks in particular.
New hope everywhere: Many investors believe that the weaker than expected inflation rate will now slow down the Federal Reserve in its rate hikes. The market is again leaning toward a 50-point move in September instead of the 75 basis points previously expected. Accordingly, the Nasdaq 100 has just entered a bull market with a 20 percent gain since the June low, see our daily chart. This means Nasdaq stocks have gained about $2.8 trillion since the interim low, according to the financial blog ZeroHedge.
And who is buying all this? If Goldman Sachs is right, it’s mainly the big players: The trading desk of the gold men suspects that hedge funds are chasing the trend and have to buy assets to the tune of a staggering 13 billion dollars – PER DAY.
Inflation rate declines
This is what happened: The Consumer Price Index for July came in below expectations at 8.5 percent – most analysts had predicted 8.7 percent. In June, consumer prices had still risen by 9.1 percent, the highest rate in four decades. After all, there are some incredible coincidences: Just before the midterms in November, inflation turns downward, which tends to benefit the Democrats as the presidential party.
Fed confirms its course
Interestingly, the Federal Reserve has recently repeatedly announced that it will continue to raise interest rates despite everything. At the Aspen Ideas Conference, Neel Kashkari, head of the Minneapolis Federal Reserve Bank, just said the Fed will not change course – even if a recession threatens. He expects the federal funds rate to be 3.9 percent by the end of the year and 4.4 percent by the end of next year. Currently, the federal funds rate is 2.25 to 2.5 percent.
Stock market investors hope
But some don’t quite believe it: “From now onwards, the Fed should start worrying about growth risks much more than inflation,” commented Ashish Marwah, Chief Investment Officer at ADS Investment Solutions Ltd. And Lewis Grant, Head of Global Equities at Federated Hermes, added: “Despite the Fed’s unwavering rhetoric, this release has given investors hope that the pace of rate rises in the US will slow and that the fabled soft landing may be less elusive than feared.”
Our conclusion from all of this is that Wall Street is once again seeing great cinema. All of a sudden, the inflation rate is dropping and stock market players are shaking off their interest rate fears. World War III has not broken out in Taiwan. The Corona situation seems to remain relaxed. The war in Ukraine is not escalating for the time being. As long as this big weather situation continues, the bulls have upper water. Until the Fed or one of the major crises again gives the spoilsport. The Bernstein Bank keeps you up to date!
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