It’s amazing what a halfway decent inflation report can do.
On Wednesday, the latest Consumer Price Index (CPI) report came in both lower than expected and better than the previous month at 2.8%. Economists were looking for a 2.9% year-over-year gain, down a tick from the 3% gain in January. Instead, it was down two ticks, and up just 0.2% from January – again, a tick less than the 0.3% month-over-month gain that was estimated.
So, Wall Street rejoiced, at least for a few hours. Both the S&P 500 and the Nasdaq were up on Wednesday, pulled back sharply on Thursday after yet another round of unwelcome tariff news (this time 200% tariffs on wine and champagne imports from Europe), but bounced back nicely on Friday. All told, the major indexes are up since the latest CPI report came out – a welcome reprieve after weeks of getting pummeled into either correction status (the Nasdaq and S&P) or near-correction territory (the Dow).
[text_ad]
Yes, the thing that’s been feeding this forceful selloff – tariffs, and an ever-escalating trade war with multiple countries – is still raging, and that again dinged the market on Thursday. But higher inflation is a big reason people fear tariffs in the first place. And, for one month at least, inflation came in cooler than expected.
Perhaps stocks will follow a similar pattern to what happened after an equally “cool” inflation report was released in mid-January. The S&P was up nearly 5% in the ensuing 10 days and eventually reached new all-time highs by the third week of February. The difference this time is that stock prices were much more depressed heading into last Wednesday’s inflation report, with the S&P down 9.3% from its February 19 high and the Nasdaq down 13%. So, if bargain hunters were looking to pounce on the first bit of good news, it’s possible a nice recovery is in order in the back half of March.
Of course, our timeline as investors, and not traders, is much longer than half a month. We can afford to be patient through all the volatility and uncertainty the tariffs, trade war, stagnant interest rates and looming specter of higher inflation have wrought. And looking at the market from a 10,000-foot view, the picture looks quite encouraging: a bull market, coming off a sharp correction, with inflation still under control. Value stocks in particular look healthy.
Indeed, at a time when growth stocks have cratered, falling more than 9% year to date, value stocks are actually up slightly (about 1%) so far in 2025. In times of such uncertainty and the potential for muted growth, value stocks represent a safe haven. And after 28 months of a bull market in which only a select few growth stocks have led the charge and many sectors have been left in the dust, there’s a lot of great value opportunities out there.
I’m on the lookout for the best of those opportunities in my Cabot Value Investor newsletter, where we recently added a European value stock that plays into two asset classes that are holding up well (European stocks are up more than 7% year to date, as investors seeking refuge from U.S. uncertainty are increasingly parking their money in the lower-interest-rate environment of the E.U. and England). To learn what other value stock names I’m currently recommending, click here.
Even if you’re not a value investor, the end of last week was encouraging. We’ll see if it lasts – Trump may well threaten a new set of tariffs first thing Monday morning, and the market will sell off again. But the CPI report provided a glimmer of hope for a market that desperately needed it. The more glimmers we get, the more likely it is the market will find a bottom, and we avert a third bear market in six years.
Whether that’s days or weeks away, I’m betting it happens. As long as inflation stays under control.
Sign up now!
Sign up now!
Sign up now!
Sign up now!
