The US equities market at a tipping point after CPI data

The US markets are at a tipping point after CPI figures point to slowing growth and a potential pivot from the Federal reserve. The US released its updated CPI figures overnight as the data pointed to lower inflation and slowing growth. The Federal reserve may be buoyed by this data as it highlights that its interest rate hikes have been working to slow the exceptionally high inflation hitting the country. The question is whether the Fed be satisfied with this level of slowed growth or will they wait for lower growth figures before cutting the rates.

The CPI figures came in rather as expected with m/m CPI being -0.1%, y/y at 6.5% and Core CPI m/m at 0.3%. Again, these figures point to a slowing of inflation and perhaps that recessionary pressures may be starting to take over. It is so far expected that the Federal reserve will raise the official rate by 25 bps at its next meeting in February. The statement and commentary on the decision will likely provide more insight as to how it views the market going forward and the likelihood of sustained or higher interest rate rises.

Looking at the US Indices, they are all still in a down trend, with the Dow Jones being the strongest of the three. The tipping point for these indices is whether they fall back down as has been the price action over the last 12 months or if the price will finally begin its reversal. As stated above much will depend on the overall macroeconomic conditions. If the US economy can have a soft landing and gain momentum from China reopening the equities market may begin to reverse. Adding to this is that a weakness in the USD has aided risk on assets such as the Nasdaq and equities more generally. It has also supported the increased price of many commodities which has stabilised the Dow Jones Index. The downside is that if the world does begin to enter a recession and growth continues to stagnate confidence in the market may falter. Ultimately for a reversal to be confirmed significant break out above the 200- and 50-day moving averages would be desirable.