Inflation data boosts US stocks Analysts: Another major risk in the market remains ever-present

According to Zhitong Finance APP, the latest mild inflation data may bring a brief market boost, but investors still need to be cautious as another major risk looms over the market: President Trump's tariff policy and the escalating trade war remain persistent concerns.

The inflation report released on Wednesday was generally positive, and the market reacted favorably. The S&P 500 index rose by 0.49%, the Nasdaq Composite index increased by 1.22%, while the Dow Jones Industrial Average remained basically flat, hovering around 41,430 points. However, these gains were not enough to offset earlier market losses this week, reflecting investors' worries about Trump's tariff policy and the ongoing escalation of the trade war.

Currently, Canada, China, and the European Union have implemented retaliatory tariffs on U.S. exports, further exacerbating market unease. Skyler Weinand, Chief Investment Officer of Regan Capital, stated in an interview: "If this market malaise continues for several months, we will see consumers and businesses start to cut back on spending, which will slow economic growth."

Typically, mild inflation data would increase the likelihood of the Federal Reserve cutting interest rates. However, the market's expectations for the Fed to maintain interest rates at the May meeting have risen from 61% before the inflation report to 68%.

Brij Khurana, a fixed income portfolio manager at Wellington Management, pointed out: "The Fed may remain on hold for a long time until it is confident that government policies will not further drive up inflation."

Moreover, the ongoing malaise in the Wall Street market may affect consumer and business confidence, leading to a greater negative impact on the stock market. Doug Ramsey, Chief Investment Officer of The Leuthold Group, stated: "The stock market is not only a leading indicator of the economy but also a driver of the economy. The market is often an excellent predictor."

The current bull market has extended the duration of economic expansion beyond expectations, but the "wealth effect" felt by investors due to rising asset prices may be fading. This psychological shift could create a negative feedback loop, putting downward pressure on the economy.

If the S&P 500 index experiences a long-awaited correction (the last correction occurred in 2023), the market may welcome some positive factors. Some overvalued stocks may experience a bubble deflation, and if corporate earnings remain robust, this will create more investment opportunities. Additionally, the fundamentals of the U.S. economy remain solid, with low unemployment rates and ongoing investments in manufacturing and other sectors. It is expected that Congressional Republicans will push for new tax cuts later this year, which may help offset some of the economic slowdown caused by the uncertainties of the trade war and tariff policies.

Andrew Skatoff, Chief Investment Officer of Bancreek Capital Advisors, suggests that investors consider U.S. industrial companies that may benefit from the growth of artificial intelligence investments. For example, electrical component manufacturers Eaton (ETN.US) and Hubbell (HUBB.US) are major holdings in Bancreek's U.S. large-cap ETF, and although these industrial companies have been hit hard this year due to market concerns over DeepSeek's competition in the AI field, the sell-off may have been overdoneSkatoff also believes that investors should increase their investment allocation to international markets. As the market advantages brought by the uniqueness of the U.S. economy gradually diminish, global markets may be catching up. For example, the iShares MSCI EAFE ETF has risen 9% so far this year, significantly outperforming the S&P 500 index, which has declined by about 5%