Record highs and inflation on the menu in week ahead

There are mumblings that stocks could again reach new highs on Wall Street in the week ahead even though newly emerging data could show the highest yearly rise in consumer inflation for close to three decades.

On Friday, stocks soared to record highs following an eventful week which included the Fed announcing it would wind down its bond purchasing, as it set out its intention to ease stimulus measures originally aimed at supporting the US economy through the pandemic.

The S&P 500 was up by 2% on Friday, sitting at 4,697, while the Dow Jones, also at a new high, climbed by 1.4% to 36,327. The Nasdaq rose by 3% to a record 15,971.

Despite rumours over inflation, interest rates and earnings remain in place, which are key drivers for equities.

“I think the Fed gave the equity market what it was looking for... which was an awareness of inflation without an overreaction to inflation. Meanwhile we’re still digesting what’s been a really strong earnings season,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.

By the middle of 2022, the Fed anticipates it will have filly tapered its $120bn a month bond buying scheme.

Around that point it is possible that they may raise interest rates.

On inflation, Jerome Powell is still sort of toeing the ‘its transitory’ line, although he has vowed to act, if, or perhaps when, that proves not to be the case.

“I think investors are sounding the all-clear for the equities market here, at least in the short-term, and it’s hard to argue with,” David Donabedian, chief investment officer of CIBC Private Wealth Management, told CNBC.

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