Ella 
Stocks are showing signs of rebounding after a tough start to the year.
The S&P 500 and Nasdaq Composite are clearly in positive territory, with investors active, driven by a rebound in large-cap tech stocks. The 10-year U.S. Treasury yield generally remains below 4%, boosting market optimism.
While the week was expected to start quietly, traders quickly regained confidence, especially ahead of Thursday’s release of the U.S. Consumer Price Index. If the current cooling forecast holds true, the monthly rate is expected to increase by 0.3%, and the annual core inflation rate will record the slowest level since May 2021. This is expected to have a positive impact on risk markets and enhance market optimism about interest rate cuts.
Judging from last Friday’s trading data, it is difficult to determine whether there is a unanimous “groupthink”, with some people acting blindly, while others see a clear path to a soft landing for the economy; therefore, it is clear that the market at the beginning of this week unclear.
With economic growth and inflation remaining subdued, the current situation suggests that the Federal Reserve is normalizing policy and may cut interest rates this year, or as early as March or May if inflation remains weak. The key focus now is the speed and intensity of future interest rate cuts by the Federal Reserve. U.S. inflation data on Thursday is expected to be critical in providing further insights. However, the market reaction remains uncertain if inflation is in line with or below expectations, especially if inflation data softens.
For index investors, following trends can still be a dangerous activity. The current situation in the stock market is very unstable, and recent economic growth is not expected to bring much support to the stock market. It’s a dilemma: If economic growth slows, it could adversely affect corporate earnings growth, but if the economy accelerates, it could delay rate cuts and affect the price-to-earnings ratios of highly valued technology and other stocks.
The key is to find the perfect balance that slows the economy so that inflation rises or is under control and matches the Federal Reserve’s rate-cutting path without tipping the economy into a hard landing. This is similar to the “Goldilocks” scenario. To accurately predict the market, accurate analysis of all factors is required.
