over 1 year ago • 2 mins
Lower-than-expected US inflation data sparked a massive rally in global stock and bond markets Thursday. Optimistic investors read the data as a sign that the Federal Reserve’s (the Fed’s) interest rate hikes are already having the desired effect of taming inflation and figured the next step is for the Fed to cool its jets on those future rate hike plans. Never mind that the October inflation pace of 7.7% – while still a slowdown from September’s print of 8.2% – is still significantly speedier than the Fed’s 2% long-term target rate. This, in turn, sent US and European indexes up – with the S&P 500 rising 5.5%, the Nasdaq 100 rising 7.5%, and the Stoxx 600 rising 2.8% on the day.
Some of the top gainers were rate-sensitive sectors like tech, real estate, and consumer discretionary. Stock prices don’t tell us about the state of the economy: they tell us more about the state of investors and markets. Thursday’s price reaction was interesting because it showed just how negatively investors were positioned and because it revealed the potential risks to the upside: a little positive news is enough to drive an outsized price reaction.
While the jury is still out on whether the 5.5% gain Thursday on the S&P 500 is justified, the pain for investors who might have decided to sit out this bear market is especially large. After all, they might have missed out on one of the largest single-day returns of the year. It’s hard to understand the market, much less try to time it. But Thursday’s price rally only proves the old adage right: it's not about timing the market, but about time in the market.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.