US stock markets react to inflation data – how long will interest rates stay high?

US stock markets react to inflation data – how long will interest rates stay high?

According to a report by finanzmarktwelt.de,

US stock markets were surprised by higher-than-expected inflation data on Tuesday - as financial markets brace for the possibility that the Fed could keep interest rates high for longer than hoped.

Unexpectedly high inflation in the US surprised financial markets, causing the S&P 500 to fall by -1.5%. This development has meant that the chances of the Fed cutting interest rates are diminishing and markets are now pricing in a shift in these expectations. The stock markets had risen sharply in recent weeks and valuations were stretched. Tuesday's correction is also reinforced by the stock market's historical seasonal momentum, which suggests mid-month profit-taking.

Wall Street's reaction to the inflation data was immediate. Adam Sarhan of 50 Park Investments highlights that market expectations and economic data are misaligned, leading to a major sell-off in stocks. This in turn shows that the Fed will cut interest rates more slowly, which has not yet been priced into the stock market.

CFRA chief investment strategist Sam Stovall reinforces the view that the Fed will cut interest rates more slowly, with fewer rate cuts throughout the year. This assessment is also reflected in the statements of other financial experts who also take a more cautious stance towards stock markets.

Overall, Wall Street's reaction to the inflation data shows that expectations of Fed rate cuts are now being revised and a more cautious stance is being taken towards equity markets. This could lead to a prolonged period of uncertainty and volatility in financial markets.