CPI climbs, but so does market: Inflation fears didn’t last long

The stock market is nervous, and the economic signposts are harder to spot. Get used to it, experts warn.

A $2 trillion rout in U.S. equities knocked investors out of a trance of profit euphoria. And they suddenly found themselves latching onto inflation as the thing to obsess about — until January’s CPI data came out Wednesday and they decided they weren’t interested in it, after all.

So maybe, they told themselves, the key to the market actually is strong fundamentals. Or weak fundamentals or overheating fundamentals or volatility traders or companies buying back shares or, heck, maybe it’s the Chinese Zodiac.

The stakes are getting higher — the S&P 500 just suffered its first correction since 2016 — but the narratives are getting squishier, the signposts harder to spot. Get used to it, says Walter Todd, the chief investment officer of Greenwood Capital Associates. This is what happens when economic cycles get old.

“The markets are having attention deficit disorder; they can’t figure out what they want,” said Todd, chief investment officer at Greenwood Capital Associates. “There is a lot of emotional reaction going on. Inflation data is one piece of the puzzle, but right now people are focused on how this one piece will fit in, and I have to be wary of that.”

Behind all these different theories is a fairly simple story: 10 years of unprecedented stimulus from the Federal Reserve is being yanked, and nothing is as certain as it used to be.

Violent reactions to each little data point are a sign that human emotion is back in control, with the backstop of monetary policy no longer as reliable.

“This is a market that is nervous,” said Quincy Krosby, chief market strategist at Prudential Financial. “It doesn’t know what the Fed’s plan is.”

It was only last month that unprecedented profit upgrades spurred by President Donald Trump’s tax overhaul sent the S&P 500 to its biggest rally in two…

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