Market Minute: It's Bulls' Game to Lose

Consumer price inflation was right in line with expectations this morning. CPI rose 2.7% annually, a slight uptick from last month's pace, but it's exactly what economists expected. At the same time, mortgage applications surged. It's as good of a morning as bulls could ask for. 

This relatively benign inflation print gives the Federal Reserve the all-clear to manicure interest rates via one more 25-basis point cut in a week, which is exactly what markets have been wanting. Expect today's 10-year Treasury auction to meet plenty of demand and rates to continue to stay subdued.  

One thing on the macro front that doesn't quite fit perfectly with the message of lower rates is the resilience of the U.S. dollar next to lower Treasury yields. Perhaps it just means global central banks will be even more dovish than ours, but there is still a notable gap between the two that suggests maybe yields will find their way back up after the Fed cuts, similar to how bonds responded to the Fed's initial cut in September. But for now, the risk the bond market loses to stocks remains low. 

The biggest threat to stocks at this juncture is probably just sentiment. Appetite for risk is obviously running very high, with valuations back at some of the highest levels ever recorded. A good bit of that euphoria seems tied to policy expectations on Trump 2.0, with this week's small-business optimism surge the latest empirical evidence of how political expectations and biases can inform real decisions that impact the economy. 

Stock valuations should make investors queasy at this point, but it's hard to poke big holes in the Trump 2.0 story until we actually get the new administration through the door, and even then, it may take something shocking to break the market's optimism. Just look at stocks like Tesla (TSLA), spinning higher in a fervor of options-driven momentum, MicroStrategy (MSTR), levered to the hilt on the crypto boom, or Apple (AAPL), again steadily grinding higher on hopes of a big iPhone cycle. 

Until it's obvious that speculators are running thin on funds, and the jobs market suggests good runway, this is not a bull you want to wrangle with.