This past week was a very important one for the stock market. With the arrival of several different economic reports, investors learned how inflation is trending in the U.S. economy.
Those reports were largely soft, suggesting inflation is on a much better path than expected. In response, the market is having a fantastic week, with stocks broadly ripping higher since Monday.
And we think this breakout rally is set to continue for at least the next few weeks.
The fact is, this is a stock market that wants to go up.
There’s a lot of optimism about tax cuts, deregulation, and other pro-growth policies promised by the incoming administration. As such, there’s a lot of hope for those actions to boost economic activity and corporate earnings growth.
Plus, it comes amid continuing excitement about the AI Boom, especially after Taiwan Semiconductor (TSM) – one of the world’s largest AI companies – just reported excellent quarterly earnings.
This market has the juice it needs to begin another leg higher.
Yet, so far this year, inflation fears have kept it on a tight leash.
But we think this week’s inflation data should put those fears to bed – even if just for now.
‘Inflation Week’ Review
The latest Producer Price Index (PPI) report showed that U.S. producer prices rose less than half of what was expected in December. And core producer prices – those excluding volatile food and energy costs – didn’t rise at all.
Meanwhile, December’s Consumer Price Index (CPI) report showed that core consumer price inflation – arguably the most important metric – recorded its first decline in six months. Not to mention, core CPI inflation is expected to decline again in January.
It seems safe to say that core disinflation has returned.
Additionally, we learned that while import and export price inflation is rising, both remain largely at long-term “normal” levels. And neither are providing worrisome signs of reinflation.
In other words, broadly speaking, this week’s data was very good. And the next big batch of inflation data doesn’t arrive for another month. So, we think inflation fears across the market will ease between now and then.
That should provide a huge boost to stocks through lower Treasury yields and bigger rate-cut bets.
Indeed, this is already happening.
This past week, the 10-year Treasury yield sank from above 4.8% to nearly 4.6% – one of its sharpest weekly moves lower in recent memory.
Meanwhile, traders also increased their rate-cut bets for 2025. Early in the week, they only anticipated about one rate cut this year and didn’t think it would arrive until September. Now, traders think two rate cuts are possible in ‘25, with the first expected as soon as June.
Now with inflation fears easing…
…Treasury yields falling…
…And rate-cut bets rising…
Stocks seem primed to rally into February.
The Final Word
That’s especially true given the arrival of the fourth-quarter earnings season, which should be quite strong.
The incoming data shows that the economy has clearly strengthened over the past few months, which should be reflected in upcoming earnings reports. As such, we’re expecting a strong earnings season. And that should provide a lift for stocks, too.
Then, next week, there’s the inauguration of Donald J. Trump, soon to be the 47th President of the United States.
Love him or hate him, he’s likely to execute a flurry of new policies in his first 100 days in office – many of which could be pro-growth deregulatory decisions, tax cuts, and more. All of that should bolster stocks as well.
Altogether, we have a bullish cocktail for stocks to rise much higher over the next few weeks.
Needless to say, we like the current market setup a lot.
To help us find some of the best stocks to buy for this rebound rally, we’re looking to Elon Musk – the world’s richest man.
One major reason is because he has allied himself very closely with President-elect Trump. As a result, he has been named the head of the soon-to-be Department of Government Efficiency. It seems his sphere of influence, if you will, is likely to grow significantly, arguably to unprecedented levels, in 2025.
What will he do with that authority?
Probably a lot. But among some of the things he’s likely to do is support the industries in which he does a lot of business.
And one such industry already has the underlying enthusiasm it needs to send top stocks soaring. Of course, I’m talking about AI.
That means Musk’s own xAI could be preparing for launch… so, now is the time to invest.
Learn all about the promising ‘backdoor’ way to play xAI’s imminent takeoff.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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