News
Weekly Stock Market Update | Edward Jones
A view from the peak
Key points:
- The April US consumer price index (CPI) report, released last week, allayed fears that a new wave of inflationary pressures was emerging. While inflation is still too high for comfort, the latest data signaled that consumer price pressures are gradually moderating in the US, a trend that has been more favorable in Canada so far this year.
- Stocks rose and interest rates fell due to the combination of better-than-expected inflation (supporting the US Fed’s case for rate cuts at some point this year) and strong corporate earnings announcements.
- Stocks hit new all-time highs last week. While we anticipate more bumps along the way as we move forward, we don’t think this represents the final peak for stocks, with the combination of continued economic growth, rising profits and less restrictive central banks offering a positive backdrop for the bull market to continue.
Not only do peaks have two sides, rising and falling, they can also represent opposite conditions. A player on your favorite team peaking during the playoffs – good. Your blood pressure spikes when your team misses the playoffs – not so good. The relationship between inflation and the stock market has been particularly acute for some time now, with the peak of the former playing a key role in the latter. It matters which side of the peak you are on.
We would say that, currently, we are on the favorable side of each. Inflation is falling and stocks are rising. Now the question is: “Can they both continue?” Domestic stocks hit new highs and the Dow reached a new peak last week, briefly hitting 40,000, thanks to a better-than-expected US inflation report1. Here are some perspectives on why we think the inflation spike will remain in the rearview mirror and the spike in stocks is still further down the road:
The US inflation report the market needed.
- The peak:
- Global inflation peaked in 2022, with global CPI peaking in the summer, amid rising food and energy prices. Core CPI peaked in September as supply chains began to recover, input prices began to moderate, and the Fed’s tightening policy began to take effect. While overall consumer prices reached 40-year highs due to the impacts of the pandemic, notable drivers of the rise in underlying inflation were increases in the prices of used cars, leisure and hospitality services, and shelter (prices of houses and rent).1.
Inflation is far from its peak, but it is still very high.