Disinflation progress and lower rate hike odds will support equity valuations
Too little corroboration in the last 3 days to call a trend (2 articles). Watching for it to gain traction.
Commentary indicates that progress on disinflation combined with lower expectations for rate hikes is providing support for equity prices, with Fed leadership commentary being interpreted as dovish relative to prior expectations. This theme emphasizes the positive feedback between moderating inflation and equity valuations.
Equity multiples expand when the market reprices the probability of future rate hikes downward, as this reduces the terminal discount rate applied to long-duration cash flows. This valuation support persists as long as inflation data and Fed communication remain consistent with lower-for-longer rate expectations.
"Stocks found support today on comments from Fed Chair Warsh, who said he's impressed by the economy, which appears to have strengthened, and vowed to get inflation back down to the Fed's 2% target."
"Stocks closed higher on Wednesday due to strength in AI and chip stocks after CoreWeave and Super Micro reported better-than-expected earnings. Stocks also received a lift from Wednesday's favorable CPI report, which supported T-note prices and reduced the odds of a rate hike at the next FOMC meeting to 40% from 51% on Tuesday."