Inflation, Earnings, and the Market’s Surprise Rebound

It’s easy to assume that rising inflation would negatively impact stock prices. After all, when the Consumer Price Index (CPI) for January jumped 0.5%—bringing inflation back to 3%—the stock market’s initial reaction seemed to confirm that belief.

Futures contracts for the Dow Jones Industrial Average (DJIA) plunged more than 400 points immediately after the CPI report was released, sending a clear signal of concern among investors.

Adding to market anxiety, Federal Reserve Chair Jerome Powell had just told Congress that inflation remained a challenge and that the Fed was in no rush to cut interest rates. His comments quickly shifted expectations from “maybe three rate cuts this year” to “maybe only one.”

But then, something unexpected happened.

Stocks rebounded.

By early afternoon, the Dow had recovered more than half of its losses, and the NASDAQ had moved into positive territory.

Earnings Take Center Stage

What fueled this turnaround? Strong corporate earnings.

Despite concerns over inflation, earnings remain the most critical driver of stock prices—and they are delivering in a big way. Heading into this earnings season, analysts projected that S&P 500 companies would post earnings growth of 7.3%. Instead, the companies that have reported so far are seeing an impressive 12.5% year-over-year earnings growth—the biggest Q4 gain since 2021.

However, an interesting trend has emerged: while profits are soaring, revenue growth has been below average.

Original Article Published at: Outsider Club

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