Bloomberg: Over the past year, few things have mattered more to investors than inflation and the Federal Reserve’s campaign to tame it. But oh how things have changed. In 2022, Wall Street tirelessly parsed every inflation-related figure and awaited every update with bated breath. Now, investors don’t react much — or at least not as much as they did.
On Thursday, the consumer price index hit and the S&P 500’s reaction was tied with April for the smallest since January 2022. And the most recent interest-rate update saw the shallowest reaction in the equity benchmark out of seven of the last Fed days.
One explanation is that traders are slowly getting used to easing price pressures, with every report confirming the trend, said Kim Forrest, chief investment officer at Bokeh Capital Partners. Consumer prices rose 6.5% in the 12 months through December, declining for a sixth straight month and marking the slowest inflation rate in more than a year.
Moreover, the similar market reaction to Fed rate hikes is perhaps a testament to the fact that, with inflation slowing, policymakers will be done with their increases sooner than later, Forrest said.
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“Earlier, we saw inflation go down, but we didn’t know if it’s going to go up again,” Forrest said by phone. “Now there’s this relief that the peak of inflation is most likely behind us. That gives confidence to some on Wall Street that the Fed won’t need to hike all that much.”
There’s perhaps another component to subsiding S&P 500 moves. Throughout 2022, investors zoomed in on a handful of macro data points — jobs data, inflation, the central bank’s dot plot forecast. While that’s still the case this year, a sense of exhaustion is slowly creeping in.
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The S&P 500 added about 0.3% on Thursday. The gauge slid 0.6% on Dec. 14, when the Fed downshifted to a 50 basis-point hike from a series of four jumbo hikes.