Is It Time to Buy S&P 500 After the Inflation Retreat?

Stock markets have had an incredible rally since late 2022, with US equities leading the Way. S&P 500 moved above 5,000 points last week but fell back below today as investors absorbed a hotter-than-expected January inflation report that showed prices decreasing less than predicted.

US Inflation Rate Remained Elevated in January

The Consumer Price Index (CPI) data for Tuesday came above expectations, with core CPI which exclude the volatile food and energy categories, revealing a 0.4% increase last month, marking the highest monthly advance since April 2023. The headline CPI figure showed that prices rose by 3.1% on an annualized basis, surpassing analyst expectations of 2.9% but showing a slowdown from the 3.4% annual increase seen in December. Core CPI on the other hand remained at 3.9%, above the projected 3.7% and as as the previous month’s 3.9%. Core CPI MoM increased by 0.4% (unrounded 0.39%), exceeding estimates of 0.3% and matching the previous month’s rate of 0.3%.

Today’s Stock Market Crash Has Stopped

The tightening monetary policy by central banks haven’t deterred the bullish momentum in stock markets durong these two years, and the prospect of a soft landing for the global economy have been fuelling the uptrend in stocks recently. S&P 500 made the big leap last week, peaking above 5,000, although all other major indices have made considerable gains.

Dow Jones (DJI) was approacbhing 40,000 points, although it opened with a big bearish gap today after the US CPI numbers. NASDAQ moved above 18,000 points but retreated 500 pips lower today. Although, despite the inflation retreat, this looks like a good opportunity to go long on stocks, as they are already starting to creep higher again.

The aftermath of the announcement saw all three major indexes experiencing declines of more than 1%, with the S&P 500 down by 1.1%, flling from its record climb above 5,000 points. The Dow Jones Industrial Average (DJI) also fell 1.1% from its record closing high, while the Nasdaq Composite recorded a 1.3% decline. This marked the worst day of this year for both the Dow and the Nasdaq Composite.

S&P 500 Live Chart