US stocks continued their rally on Friday as inflation fell.
The sentiment expectation is that any slowing in rate hikes or an earlier end to that process is great news for stocks. Of course, it is. But have stocks just been falling because of rising interest rates? The US economy is in a sustained phase of serious decline with almost zero sign of improvement.
Inflation at 7.7% remains a catastrophe and that is precisely how the US Federal Reserve will see it. Therefore, even if slowed to 50 points or 25 points, rates are going a lot higher in the USA, especially as gasoline prices have begun to increase again. This is still not a positive outlook for the economy nor stock market.
On Friday we saw the release of US Consumer Sentiment which again dropped sharply. We should not be missing the point that US consumer confidence has not in its entire history since the 1950s been this low, apart from the 1980s.
This is a serious economic omen of worse to come. With rates still ratcheting higher and inflation likely to begin to rise again if gasoline prices rise further.
While the rally in the stock market is impressive, it may soon begin to roll over yet again. We also have the Democrats holding the Senate while the Republicans look likely to control the house. Policy paralysis at a time of economic crisis is not a good look for what may lay ahead over the next two years.
The current stock rally may have only days to run.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
