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14.02.2025 10:35 AM
Why is the U.S. Stock Market Ignoring Rising Inflation? (Possibility of Further Growth in #SPX and #NDX)

It appears that both American investors and those involved in the local stock market have largely dismissed strong inflation data from the U.S. But why is that?

This week's reports on consumer and producer inflation in the U.S. exceeded expectations, clearly indicating to investors that the prevailing inflation trend essentially rules out the possibility of the Federal Reserve continuing its rate-cutting cycle. Moreover, Fed Chair Jerome Powell recently stated during congressional hearings that the central bank has no reason to consider rate cuts at this time. Despite these inflationary signals, investors are choosing to overlook them. Why is this the case?

In traditional market evaluation models, stock market outlooks are closely linked to inflation dynamics and, by extension, interest rates, as borrowing costs directly affect market liquidity, particularly through the bond market. However, the current situation is atypical, largely due to the economic and political strategies of Donald Trump. His policies aimed at stimulating and protecting domestic manufacturers serve as key drivers for real-sector stocks, which in turn are propelling equity indices higher.

Additionally, the geopolitical actions of the 47th president are putting pressure on Europe and other regions, effectively drawing financial resources and even production capacities away from them. The U.S. is being positioned as a more attractive location for investment and manufacturing, further enhancing capital inflows into the local financial market. This influx of capital is another critical factor supporting stock indices.

Will the U.S. Stock Market Continue to Rise?

There is potential for further growth, especially if annual consumer inflation stabilizes around 3% without accelerating. In this scenario, the Fed is likely to maintain a pause on interest rate cuts, allowing the stock market to continue reaching new highs. However, if inflation continues to rise—which is a highly probable scenario—the Fed may be compelled to raise rates unless it succumbs to pressure from Trump and changes its broader monetary policy framework. Currently, this framework operates under the assumption of historically low interest rates around 2%. If the Fed decides to adjust its approach and raises the acceptable inflation threshold to, for example, 3%, rate hikes may not occur even if inflation rises to 3.5%. However, that would alter the situation significantly.

What to Expect from the Markets Today?

Futures on major U.S. stock indices are showing positive momentum. If this sentiment continues, we can anticipate a continuation of the short-term rally in equities, leading to higher stock indices. This trend could exert downward pressure on the U.S. dollar while potentially pushing cryptocurrency prices higher.

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Daily Forecast:

#SPX – The CFD contract on the S&P 500 futures has reached the upper boundary of the 5912.40–6124.80 range. If this level is breached, further growth toward 6242.00 can be expected.

#NDX – The CFD contract on the NASDAQ 100 futures is also approaching a local high in the 22128.50 area. However, there is also a chance of a corrective decline toward 21904.50 before resuming its upward movement.

Pati Gani,
Analytical expert of InstaForex
© 2007-2025
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