‘The market is as clueless as the Fed': Why this trader says stocks could continue to do well for months

WinShore Capital Partners' Gang Hu suggests that despite upcoming CPI data and tariff uncertainties, the stock market could remain stable for months, as the full impact of tariffs is delayed and the market isn't pricing in a potential wage-inflation spiral or recession impact. While analysts at Barclays point to stagflation signs and the potential for tariff-linked price pressures, Hu notes the market's cluelessness mirrors the Fed's, leading to a wide range of possible economic outcomes and potentially large daily price swings within a range. The key question remains whether a wage-inflation spiral will emerge, with clarity expected by September.

Analysis

Market analysis from Gang Hu of WinShore Capital Partners posits that U.S. equities may continue to perform well for months, irrespective of upcoming May Consumer Price Index (CPI) data and ongoing inflation uncertainties. This outlook stems from the observation that the full impact of tariffs on U.S. imports, which saw major indices like the Dow Jones, S&P 500, and Nasdaq Composite hit 52-week lows on April 8 following their implementation, is taking longer than anticipated to materialize in final goods prices, with businesses reportedly planning to pass on these costs by August. Consequently, derivatives traders anticipate core CPI (excluding food and energy) to peak monthly at over 0.4% in August, subsequently declining to below 0.2% by November/December, before rising towards 0.3% by next March. However, Hu expresses skepticism, stating "the market is as clueless as the Fed," highlighting that current market pricing does not account for a potential secondary wage-inflation spiral or a recession, despite recent data like increased unemployment filings and a services sector contraction. This uncertainty contributes to a wide range of potential economic outcomes, including recession or the Federal Reserve maintaining its benchmark rate between 4.25% and 4.5%. The S&P 500 and Nasdaq Composite, after reaching year-to-date highs in February (6,144.15 and 20,056.25) and lows on April 8 (4,982.77 and 15,267.91), recovered to near February highs, with Friday's close at 6,000.36 and 19,529.95 respectively, illustrating market stability within significant volatility. While Barclays analysts note re-emerging signs of stagflation, Hu, who previously made accurate inflation predictions including the Federal Reserve's first rate cut in September 2024 after holding rates at 5.25%-5.5% since July 2023, believes the market could remain range-bound. The critical factor for future market direction is whether a wage-inflation spiral materializes, with clarity expected by September. Economists polled by the Wall Street Journal anticipate benign May CPI figures, with a 2.5% annual headline rate and a 0.3% monthly core rate.

Key Decisions for Investors

• Investors should anticipate continued market resilience in the near term but remain prepared for substantial volatility and rapid price swings within established trading ranges, given the delayed impact of tariffs and ongoing inflation uncertainties.
• Closely monitor upcoming inflation data, particularly the core CPI trajectory around the anticipated August peak and subsequent wage inflation indicators through September, as these will be critical in assessing the likelihood of a secondary inflationary shock or emerging recessionary pressures.
• Given the wide divergence in potential economic outcomes and Hu's assertion that the market is underpricing certain risks, maintaining a flexible investment stance is prudent, recognizing that expectations for Federal Reserve policy, including the number of rate cuts in 2025, could shift dramatically from current views of zero to 100 basis points.