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“Have to admit it’s getting better,” the Beatles seemed to cheerily suggest in Sgt. Pepper’s Lonely Hearts Club Band. That is, until they added the parenthetical counterpoint a bit later, “Can’t get no worse.”
That could well describe the current view of inflation on Wall Street. Even with consumer prices rising at the fastest pace in 39 years, as the Labor Department reported on Friday, inflation ought to be better, or at least less bad, a year from now. On Main Street, inflation is consumers’ top problem, making Joan and John Q. Public poorer, even as their job prospects improve and their pay increases.
For their part, the major stock market indexes recouped much, if not all, of their post-Thanksgiving declines, with the
S&P 500
ending the week at a record. That wiped out previous losses after worries about the Omicron variant of Covid-19, which sparked what appears to have been an initial overreaction in the markets on Black Friday and afterward.
At the same time, concerns about a surge in interest rates, stemming from the Federal Reserve’s belated attention to inflation, also appear to have eased in the bond market, where long-term yields have been moving lower, even as yields on the short end have climbed steadily.
In essence, the fixed-income crowd seems to have come to terms with the Fed further scaling back its massive purchases of Treasury and agency mortgage-backed securities, which is widely anticipated to be announced this coming Wednesday.
That, in turn, would clear the way for a liftoff in the federal-funds target from its current 0% to 0.25% floor.
None of which appears to faze the stock side. TINA—There Is No Alternative—would still be alluring, given that short- and long-term interest rates are likely to remain near the lowest in market history, even with some marginal lift. With a 10-year Treasury note yielding under 1.50%, apparently there really is no alternative to stocks for investors who hope to keep up with consumer prices that have risen 6.8% in the past 12 months.
Inflation nevertheless remained the top concern in the latest University of Michigan consumer confidence survey, keeping the overall reading near a 10-year low, according to Friday’s release. One-year inflation expectations stayed at 4.9%, the highest figure…
Read More: Stocks Notch Record Even as Inflation Hits a 39-Year High