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March Inflation Report: A Bad Bear Warning

The breathtaking 2024 stock market rally is in danger of pulling back significantly. Since September 2023, markets have all but expected a rate cut for 2024. Bulls sent Nvidia (NVDA) stock up by 78% YTD. Amazon (AMZN) added 22.5%, Broadcom (AVGO) gained 20.4%, and Eli Lilly (LLY) added 28.9%.

Inflation in automobile insurance, shelter, and energy is not slowing down. It sets up a risk of inflation heading into the double-digit percentage. Even at the current trajectory, total inflation has been up since 2020, when the Fed injected trillions into the market.

The Fed may fear repeating the hyperinflation of the 1970s. In 1974, price inflation rose to 12%. Arthur Burns kept a loose policy rate as inflation increased. The oil supply shock sent inflation higher for the next decade.

Inflation needed Paul Volcker to raise its benchmark interest rate to 20%. Today, a tight supply chain continues to pressure markets. China’s supply chain disruption in 2020-2022 may push producer prices higher. Additionally, the U.S. passed punitive export restrictions on semiconductors. More recently, the U.S. vowed to crack down on China flooding the markets with inexpensive solar panels, batteries, and electric vehicles. That news sent China EV giants Nio and XPeng (XPEV) to lows not seen since 2020.

China’s e-commerce firms resumed their decline. Alibaba (BABA) closed at $71.29. South Korean firm Coupang (CPNG), however, gained 11.5% last Friday to close at $21.25.

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