Investors on Wall Street seemed largely unfazed by the latest signs of cooling inflation, as the S&P 500 closed little changed on Friday and ended the week in the red. The broader market index ticked down just 0.01% to 6,114.63, while the Nasdaq Composite gained 0.41% and the Dow Jones Industrial Average shed 0.37%.
What this really means is that the markets are looking past the recent improvement in inflation data and focusing on the bigger picture - a still-uncertain economic outlook. As CNBC reports, the economy seems to be sending mixed signals, with consumer spending slowing but hiring remaining strong.
Inflation Cools, But Concerns Linger
The January Consumer Price Index (CPI) report, released on Friday, showed that annual inflation slowed to 2.4% - an eight-month low. This was welcomed news, as it suggests the Federal Reserve's aggressive interest rate hikes are starting to have the desired effect of tamping down price pressures. However, as CNN Business explains, the details were more nuanced, with some prices still accelerating.
"Even a good inflation report from the perspective of economists is higher prices, and that is not going to sit well with a lot of households," said Tyler Schipper, an associate professor of economics at the University of St. Thomas. The ActionForex team noted that the CPI data did little to alter market expectations around further Fed rate hikes, as investors remain cautious about the path ahead.
Disconnect Between Data and Sentiment
The mixed signals in the economy were underscored by the divergence between the relatively upbeat economic data and the more somber consumer sentiment. As one expert put it, "This is one of those tough weeks where spreadsheets and data are cheery, but households still aren't." The recent analysis of how Trump-era policies have shaped the current economic landscape provides helpful context.
Looking ahead, investors will be closely watching for any further signs of a cooling labor market and deteriorating consumer confidence, which could signal more turbulence on the horizon. As this article notes, the markets may be in for more volatility if the economy's disconnect between growth and sentiment persists.