NEW YORK, June 4 — A rally that lifted US stocks from the brink of a bear market faces an important test next week, when consumer price data offers insight on how much more the Federal Reserve will need to do in its battle against the worst inflation in decades.
“This market is likely to remain range-bound until we get a meaningful move lower in inflation,” said Mona Mahajan, senior investment strategist at Edward Jones, which currently favours large-cap stocks over small-cap, given the ability for larger companies to absorb higher input and wage costs. “Clearly, the print next week is going to be key.” The consumer price index for the 12 months through April rose 8.3 per cent, down from an 8.
Investors’ view of inflation is critical to how they value equities, as higher prices have typically spurred the Fed to raise interest rates, with higher bond yields in turn reducing the value of future corporate profits. Rising prices also raise costs for businesses and consumers.