Inflation Cools to 2.8%: Good News for Stocks
US stocks staged a modest rebound today, but it wasn’t exactly a smooth ride. We’re still seeing that familiar pattern from the past few days: a brief mid-session pop followed by a fade. The big story this morning was the pre-market release of the February CPI data, which came in milder than we anticipated yesterday. Even better, it undershot expectations across the board, giving investors a pleasant surprise. Year-over-year, the CPI slowed to 2.8%, below the 2.9% Wall Street expected and down from January’s 3%. Month-over-month, it ticked up just 0.2%, missing the forecasted 0.3% and last month’s 0.5%. Core CPI, which strips out food and energy, also cooled to 3.1% year-over-year—lower than the 3.2% expected and 3.3% prior, hitting its slowest pace in four years. On a monthly basis, core CPI growth dropped to 0.2% from 0.4%, under the 0.3% consensus.
This softer-than-expected CPI is good news—especially for risk assets like stocks. Economists had been warning that seasonal adjustments might make today’s number hotter than anticipated, so this miss to the downside is a clear win. My investing idol, Peter Lynch, once said you shouldn’t listen to economists when picking stocks—otherwise, they’d all be billionaires. Reality check: how many top traders in Wall Street history were economists? Not many. Why? Different skill sets. Being great at economic analysis doesn’t automatically make you a market wizard. The stock market’s got its own rules—it’s a battleground of money and human psychology, not some textbook economic model.
Digging into the CPI details, egg prices—yep, eggs—were a big driver of January’s strong reading, and they jumped another 10% in February, up 58% year-to-date. That’s outpacing broader food inflation, which eased from 0.4% in January to 0.2% this month. But there’s a silver lining: demand for eggs seems to be cooling as consumers balk at the sticker shock, slowing the price surge. Housing costs, the heavyweight in the CPI basket, accounted for nearly half of this month’s gain but rose a modest 0.28%, down from 0.3% last month. Gasoline prices also fell, a sharp contrast to recent years’ spikes. Core inflation got a nudge from healthcare, used cars, entertainment, and apparel, while airfares and new car prices dropped. That dip in airline tickets backs up what carriers have been saying lately: travel demand’s softening.
This CPI report brought some much-needed relief to the market, dialing back immediate inflation fears. Right after the data hit, traders ramped up bets on at least two Fed rate cuts this year, though June still looks like the starting line. Stocks spiked pre-market and early on, with some safe-haven cash flowing back into equities. Today could’ve been a bigger win, but then Fed Governor Waller threw cold water on it, noting that inflation swaps steepened post-CPI. Short-term swap rates dipped two basis points, but longer-end rates climbed, signaling the market’s not convinced this cooldown is a lasting trend. Why? Looming tariffs on imports could jack up goods prices in the coming months, and neither the Fed nor traders know quite how that’ll play out. So, the early optimism faded—stocks opened strong but quickly gave back gains, turning red.
Speaking of tariffs, trade tensions are heating up. The White House slapped a 25% duty on imported aluminum today, effective immediately, with no exemptions for any trade partners. Canada hit back, announcing 25% retaliatory tariffs on $29.8 billion of US aluminum goods. The EU’s not sitting idly either—they’re set to impose tariffs on over $28 billion of US products starting April 13. Against that backdrop, the S&P 500 sank to an intraday low of 5,546 before two heavyweights—Tesla and Nvidia—flipped the script. The index clawed back to close up 0.49%. The Nasdaq outperformed, gaining 1.22%, while the Dow lagged, down 0.2%, dragged by defensive sectors like consumer staples, healthcare, and utilities. Cash rotated out of those into beaten-down tech names, especially oversold mega-caps.
Tesla stole the show, surging 7.6% and lifting the S&P 100. Trump reportedly bought a red Model S yesterday to show support for Elon Musk, calling threats against Tesla “domestic terrorism.” Musk tweeted gratitude, pledging to double Tesla’s US production capacity over the next two years to bet big on America’s future. Morgan Stanley’s Adam Jonas—Tesla’s biggest bull—was practically in tears, clapping like a fanboy and sticking to his $800 price target within a year. For Jonas, Tesla’s not just a stock; it’s a religion. Faith matters more than quarterly deliveries. JPMorgan’s not buying the hype, though—they slashed their target from $135 to $120, citing brand erosion and a grim delivery outlook (Q1 estimate: 355,000 vehicles, down from 444,000). I’ve got some Tesla shares myself. Neither $800 nor $120 feels right—too extreme, and the agendas behind those calls are suspect. If the market tanks later this year, Tesla’s not immune, no matter how loud the cheerleading gets. My plan: sell into this bounce and buy back around $200—or lower if it hits triple digits.
Nvidia, the AI king, also gapped up today, leading a pack of AI stocks higher. Next Monday’s GTC conference—think AI, GPUs, and humanoid robots—is the catalyst everyone’s watching. CEO Jensen Huang’s keynote drops Tuesday, alongside an investor day. The new GD300 chip will take center stage, with a focus on inference. Wells Fargo notes Nvidia’s stock has averaged 6.4% gains during GTC week and 4.5% in the two weeks after over the past five years. At current levels, it’s trading 35% below its three-year average P/E—cheap for a growth name. After recent declines, bargain hunters piled in, and some shorts covered ahead of GTC. Of the “Magnificent Seven,” only Nvidia and Tesla posted big gains today. Tesla’s got Trump’s halo; Nvidia’s earning it the old-fashioned way—drawing dip-buyers on its own merits. I’m hoping GTC sparks a rally to test the yearly high—$130 would be gravy.
Apple’s still wobbling, with shares sliding again. Morgan Stanley cut its target, blaming delays in Siri’s AI overhaul. The Seven’s average P/E has dropped from 30x to 26x, aligning with its five-year norm, but Apple’s still above its decade-long average. I’d wait for $200 before even thinking about a bottom-fishing play.
Overall, today’s CPI didn’t flip stocks into full-on “inflation’s dead, Fed’s cutting” party mode—it just softened the extreme pessimism. Some cash trickled back into equities yesterday, hinting at front-running ahead of the data. Tomorrow, trade talks and PPI numbers loom—yesterday, I said I’m optimistic on CPI but wary on PPI. Tariffs and uncertainty are keeping a lid on confidence. The S&P 500’s grinding around 5,565, and this 10% pullback still looks like a standard correction. The question is whether selling snowballs past 15% into a deeper rout or if this is a staging ground for a bounce. Short-term pressure’s easing—hedge funds have slashed exposure, and bearish momentum’s fading. But mutual funds and retail are still heavily long, with low cash reserves. Even if we rally, they might sell into strength to unwind positions, capping the upside.
Strategists say sentiment and positioning are flashing mild “buy” signals, but they’re holding out for stronger confirmation of a bottom. The Dow’s up 2% YTD but keeps fading from highs—too weak to hold the 50-day moving average. It’s a choppy consolidation. Left-side buyers risk more downside; right-side chasers might miss the boat if stocks gap up. Weigh your options. Trump’s policy flip-flops, April’s tariff rollout, and a messy global trade fight aren’t helping. Q1 earnings will likely see companies blame “macro uncertainty” for soft guidance. I reckon markets won’t stabilize until June, when tariff fallout clarifies and the Fed’s rate path firms up—maybe with Trump’s tax cuts in play. Until then, rebounds are just short-covering “dead cat bounces.” Don’t sleep on those, though—they can fake out bulls and trap latecomers. I’m not super bullish but cautiously bullish here; trade friction will keep a ceiling on gains. Stay nimble, manage your risk, and if you’re holding losers, don’t panic-sell now—wait for the bounce.
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