🚨 IS OUT!! Inflation Eases, Volatility Spikes

March 13, 2025 >> Macro Investors

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Dear all,

The yesterday inflation report just landed, and it’s giving us plenty to think about.

If you’ve been watching the macro landscape as closely as I have, you know that every decimal point in CPI data matters - not just for policymakers, but for how we position ourselves in the markets.

These numbers can shift expectations, move capital, and create opportunities for those who understand the patterns.

What might seem like a minor shift in inflation today could have massive repercussions on bond yields, stock valuations, currency movements, and even the broader economy in the months to come.

So, let’s break this down.

Headline CPI has now cooled to 2.8%, down from 3.0% last month.

That’s the lowest reading since November 2024. Core CPI, which strips out more volatile components like food and energy, has slowed to 3.1%, marking the slowest pace since April 2021.

At first glance, this looks like a positive development.

Inflation easing should, in theory, give the Federal Reserve more room to maneuver and eventually ease policy restrictions.

But markets, as always, have their own way of interpreting the data, and reactions are rarely straightforward.

Monday’s market reaction was sharp, with the S&P 500 posting its worst day of the year, dropping 2.7%.

For some, this might feel like a warning sign that something bigger is brewing, but history suggests otherwise.

If you look back at previous years when the market finished strong, you’ll find that nearly every one of them had at least one significant selloff.

Since 1950, there have been 22 years where the S&P 500 gained over 20%, and in every single one of those years, there was a notable drop at some point.

On average, the worst single-day decline in those years was around 3.5%.

Take 1997, for example - the market suffered a brutal 6.9% decline in a single day but still finished the year up 31%.

Even more recently, in 2019, we saw a 3.0% drop at one point, yet the market still closed the year up nearly 29%.

These types of pullbacks shake out weak hands but don’t necessarily mark the end of a bull run.

In fact, they often present opportunities for those who are patient.

And while this year’s market volatility might feel unique, the data tells us that this kind of turbulence is entirely normal, and often even necessary for sustainable long-term gains.

If you’re new here, welcome aboard! I’m sure you’ll find your place quickly. Here at MACRO MORNINGS, we get straight to the point, delivering the key macroeconomic insights you need.