Recession Watch: Biggest Stock Market Rally In Years Looks ‘Overdone’ Since Fed Has Yet To Beat Inflation

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Investors plowed into the stock market this week after a monthly inflation report ended a streak of worse-than-expected data this year, fueling the biggest rally in years on hopes the Federal Reserve may be nearing the end of its interest rate hikes.

of 9.1% in June. Despite the one-month reprieve, many economists cautioned against being overly optimistic. “If this constitutes improvement, we’ve set a very low bar,” says Bankrate chief financial analyst Greg McBride, adding the “pervasiveness” of inflation “remains problematic," particularly since shelter, food and energy prices—“are still seeing large and consistent increases.” Mester on Thursday said she believes inflation may not return to the Fed’s historical 2% target until 2025.

Stocks have suffered since the Fed started raising rates in March, pushing the S&P down as much as 25% this year. However, the index has since pared gains to just 17%, largely thanks to hopes that the worst of inflation—and the Fed’s rate hikes —may be over. Analyst Tom Essaye of the Sevens Report notes the recent rally resembles those from March and June and predicts the S&P could climb another 5%, but he's not sure the index won’t plunge again.

 

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