S&P 500 Hits Record 5,000 As Inflation Cools

The US index of leading 500 companies topped 5,000 after inflation figures dropped, almost assuring a near-term rate cut. 

SP500 – Daily Chart

SP500 – Daily Chart

The SP500 index pushed through 5,000 on Friday, and now the only question is where new resistance will form. 

After several reports underlining the country’s resilient economy and slowing inflation, the stock index has been driven to record highs. Consumer price growth has been a big issue over the last two years but came in even lower than previously estimated in December, inflation data released on Friday showed. The consumer price index rose 0.2% in the month, rather than the previously reported 0.3%, the Bureau of Labor Statistics said. 

With price rises now easing towards pre-pandemic levels, investors are ready for the Federal Reserve to start cutting interest rates for the first time in four years. Stocks have also been buoyed by a strong earnings season, particularly among the largest listed companies, after fears of an AI fallout. The previous week also saw a very strong jobs report in the country, beating analysts’ expectations by a wide margin.  

However, the strength of the economy is slowing rate-cut expectations. Macquarie’s economics chief Danny Doyle changed his previous interest rate forecast to just two rate cuts of 25 basis points, compared to an earlier call for 9. His new forecast is also fewer than the Federal Reserve’s figures for three interest rate cuts this year.

Doyle believed as early as December that nine cuts could be coming due to recession fears. 

“Recent data have become more supportive of US growth in coming quarters. While the outlook remains uncertain and things could change in the months ahead, this shifts the probabilities in our assessment relative to our previous update in December, which was for a mild recession,” Doyle said. 

“In our forecast, a higher policy rate is required amidst more resilient growth to keep inflation on track to roughly return to the Fed’s target,” Doyle said. 

Doyle also thinks the central bank’s interest rate cut will happen at the July meeting, while the market expects the first interest rate cut to come in May, according to the CME.

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