Traders bid stocks, gold, and Silver higher, but is the optimism warranted?

Market participants continue to react to the bullish market sentiment created by yesterday’s CPI report. Inflation came in at 6.5% year-over-year last month, which is the sixth consecutive month that inflation has diminished since the peak of 9.1% in June.

Accoring to the BLS, “The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in December on a seasonally adjusted basis, after increasing 0.1 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 6.5 percent before seasonal adjustment.”

According to the report gasoline, “was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. The food index increased 0.3 percent over the month with the food at home index rising 0.2 percent. The energy index decreased 4.5 percent over the month as the gasoline index declined; other major energy component indexes increased over the month.”

The CPI core inflation (which strips out food and energy costs) climbed 5.7% year-over-year and is an increase of 0.3% when compared to the prior month. While inflationary pressures have diminished the core CPI is still roughly triple the Federal Reserve’s target rate of 2%.

That being said, the optimism caused investors to be active buyers of US equities, gold, and silver. However, they were not basing market sentiment upon recent statements by Fed. The caveat is that the Federal Reserve has on multiple occasions reinforced its unwavering resolve to keep interest rates elevated throughout 2023.

Many analysts believe that the Fed is bluffing because current rates are not sustainable for the entire year. Others believe that their vow to be transparent simply no longer exists.

US equities, gold, and silver benefited from that sentiment resulting in strong rallies in both gold and silver, as well as moderate gains in the major stock indices. The Dow gained 0.33%, the S&P 500 gained 0.40%, and the NASDAQ composite gained 0.70%.

As of 5:42 PM EST February gold futures are up $24.20 and fixed at $1923. March silver futures gained $0.41 or 1.71% and are fixed at $24.415

As I spoke about yesterday, I continue to believe that if the Fed stays the course it could lead to one of the greatest errors by the Fed in recent history. The days of the Fed being data-dependent seem only to matter when the data confirms their assumptions.

Wishing you as always good trading,