Overview of Current Market Conditions

Pre-market futures are up this morning. There is no real news on which market opinion to pivot, but slightly bullish sentiment looks to be gathering ahead of tomorrow’s Consumer Price Index (CPI) report, which is expected to come in +3.5% on the Inflation Rate (headline CPI year over year) and +3.7% on core CPI year over year. Last week’s Jobs Report was stronger than expected, so sandwiched in between these two major economic metrics, investors apparently feel pretty good about where they are.

We’re only a week and a half into a new trading quarter. The pullbacks we’ve seen — not unexpected, by the way, with +10% gains on the Nasdaq and S&P 500 in Q1 — have amounted to -2% on the Dow and small-cap Russell 2000. Thus, flowing forward by +45 points on the Dow, +13 on the S&P and +67 points on the Nasdaq as of right now. Over the last month, the Dow is +0.89%, the Russell +1.46%, the Nasdaq +2.18% and the S&P, which leads all major indices over that time period, is +2.80%.

While CPI data is the big report tomorrow, it’s not the only one. We also get a look at the minutes of the latest Federal Open Market Committee (FOMC) meeting from last month, which paused for the fifth straight meeting from making a move on interest rates. The current range of +5.25-5.50%, arrived at last July, is now the highest rate in more than 23 years, when the tech bubble was beginning to prove unstable. But we don’t see similar weaknesses in the economy presently.

Are valuations for A.I.-related stocks high? You bet they are. Yet without knowledge of foresight, there’s no way to tell how high these stocks can go, nor whether valuations for these companies will be demonstrably higher for the foreseeable future. This is a good place to be for our economy — perhaps not in terms of interest rates and inflation, but in terms of productivity and potential. Of course, this may delay plans to return ourselves to optimum +2% inflation rates, currently expected to arrive next year.

To the Fed’s credit, they have not overplayed their hand. While notably late to the party in terms of jacking up rates to cool inflamed inflation levels just over two years ago, the monetary policy body moved swiftly but not erratically to bring us our current high levels. They are now discussing rate cuts, not for the next Fed meeting on April 30/May 1, but for the one after that. We should be able to see in today’s Fed minutes if anyone is getting cold feet regarding that timeline.

Aside from higher interest rates, another salve for inflation is productivity. The latest U.S. government investment in infrastructure manifested itself this morning, with the announcement that Taiwan Semiconductor TSM is taking part of the $6.8 billion allotted in the Chips Act to build the first of its U.S.-based fabrication plants for microchips. Aside from moving a chess piece that would keep any future Chinese invasion of the island of Taiwan from almost completely annexing semiconductor manufacturing, this plant also promises plenty of good-paying tech jobs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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