The three major U.S. stock indexes recovered some ground on Monday after suffering their worst week of 2023. The Nasdaq Composite rose 0.7%, the Dow industrials climbed 0.3%, and the S&P 500 advanced 0.4%. The rebound came as investors questioned the latest U.S. data that showed stubbornly high inflation.
The U.S. economy has been on a steady recovery since the pandemic started, with unemployment falling and the stock market reaching record highs. However, the recent data showed that inflation is still a problem, with the Consumer Price Index (CPI) rising 5% in April from a year earlier, the fastest pace in nearly 13 years. This has led to concerns that the Federal Reserve may have to raise interest rates sooner than expected to prevent the economy from overheating.
The prospect of higher interest rates has weighed on stocks in recent weeks, as higher rates make it more expensive for companies to borrow money and could slow economic growth. The S&P 500 has fallen 4.3% over the past two weeks, while the Nasdaq and Dow are both down more than 5%.
Analysts have warned that inflation may remain elevated in the near term, as the economy reopens and demand for goods and services increases. In addition, the Biden administration’s $1.9 trillion stimulus package has added to the supply of money in the economy, which could drive up prices further.
However, some analysts believe that the recent inflation data may be a temporary blip, and that the Federal Reserve will not need to raise rates significantly. They point to the fact that the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) Index, remains below its 2% target.
In addition, the Fed has made it clear that it will not raise rates until the labor market has fully recovered. With unemployment still at 6.1%, the Fed is likely to keep rates low for the foreseeable future.
Overall, the stock market’s recovery on Monday suggests that investors are not overly concerned about the recent inflation data. However, the market could remain volatile in the coming weeks as investors continue to monitor the data and assess the Fed’s response. In the meantime, investors should remain cautious and focus on long-term investments.