The February Consumer Price Index came in softer than expected, rising 0.2%, according to the U.S. BLS. The core CPI, which excludes food and energy, also rose 0.2%. The core CPI slowed to an annual rate of 3.1% from 3.3% in January. February’s rate was the slowest since early 2021.
But the CPI is backward-looking. It reflects February’s data, and many are fretting over what may happen to inflation in the coming months, given the threat of new tariffs and tariffs that have already been levied.
It is one reason why the S&P 500 Index entered its first correction (down at least 10%) since late 2023, according to St. Louis Federal Reserve data. The index, which reached its peak on February 19, is down 10.13% at its most recent low on Thursday, March 13.
If you are a new investor, it might be concerning. But seasoned investors understand that market pullbacks happen with regularity. Forecasting them, however, is another matter.
Since 1980, the average annual maximum drawdown in the S&P 500 Index has been 14.0%, according to LPL Research. Yet, we also recognize that the long-term upward trend in the major U.S. market indexes has been positive.
Near term, economic growth may be losing some of its luster. Unusually cold weather earlier in the year may have kept some folks at home. That’s temporary. But the Wall Street Journal noted last week that several retailers have recently highlighted the uncertain mood among consumers.
Additionally, Moody’s Analytics pointed out in February that soaring stock and asset prices have helped well-to-do Americans disproportionately fuel consumer spending. A big pullback in stock and housing prices could have “clear implication for the economy,” Moody’s said.
We never want to overlook potential risks, as risks never completely abate.
The financial press, however, recognizes that fear and drama grab eyeballs. Sometimes, fear can be the loudest voice in the room.
Let’s review a smattering of worries over the last 15 years.
- The eurozone debt crisis of 2011-12
- The double-dip recession chatter in 2011-12
- The fiscal cliff 2012
- The collapse in oil prices mid-2010s
- Brexit in 2016
- Recession fears in 2018-19
- The pandemic lockdowns
- Recession fears 2022-23
All affected stocks to varying degrees. All were temporary. Rebounds began when the outlook appeared to be at its bleakest. And few analysts called the bottom.
Market pullbacks may be unsettling for some. But attempting to time or guess what might happen next has rarely been a good strategy. Economist Nouriel Roubini got it right in 2008. Since then, his record has been blotchy at best. No one has a crystal ball.