Stocks rebounded on Wednesday as core inflation in the United States came in below consensus expectations and news of a possible 30-day truce in the Russia-Ukraine war emerged. Big tech stocks also recovered after flirting with bear-market territory earlier this week.
Tariff tension
Extreme trade policy uncertainty continues to be a theme investors are grappling with. We don't know if the U.S. administration is focused more on pursuing better trade deals or transforming trade policy altogether. Comments from Commerce Secretary Howard Lutnick overnight suggest both are at play.
What Russell Investments is doing:
- Examining the fundamentals of the U.S. economy to see how it might weather elevated policy uncertainty
- Assessing the risk aversion of other investors to see if there are potential opportunities
Inflation softens
The good news? The latest data continues to suggest the U.S. economy remains on a solid foundation.
The inflation numbers today were encouraging, with the closely watched core CPI report undershooting consensus expectations. We continue to think moderating rent and wage pressures will allow inflation to ease further. And a deeper look at product-level price increases suggests the inflation picture is starting to look more normal—like the pre-COVID period.
"A full-throttle trade war could slow—or even reverse—recent progress, with some of our scenarios showing core inflation reaccelerating to 3% or higher by year-end."
Paul Eitelman, CFA
Global Chief Investment Strategist
Trade war risks
Trade policy remains a key risk to the inflation outlook, although it's too early to see a material impact in February's report. But a full-throttle trade war could slow—or even reverse—recent progress, with some of our scenarios showing core inflation reaccelerating to 3% or higher by year-end. Trade policy and the next few months of inflation data will help shine a brighter light on these trends. Meanwhile, amid questions of a possible pullback in consumer spending, data from select credit card companies suggests spending is still chugging along. Again, the next few months will be key.
Bears top bulls
Finally, on market psychology, the Investor Intelligence survey of newsletter writers showed more bears than bulls today—a rare occurrence that's provided a useful buying signal around recent market bottoms.
While there's no guarantee we are at a market bottom right now, it's important to remember that moments of uncertainty and risk aversion in markets are often periods that ultimately reward long-term investors for sticking to their strategic plan.