Bloomberg Surveillance 8/12/2025

US Core CPI has accelerated at its fastest pace since January, contributing to market instability driven by persistent inflation expectations. This current inflationary pressure is exacerbated by predictions that tax refunds will trigger further inflation next year, leading a record number of investors, per BofA, to view current stock valuations as excessive.

Analysis

Recent economic data indicates a significant re-acceleration in inflationary pressures, with the US Core CPI registering its fastest increase since January. This development is contributing to market instability, as rising inflation expectations make markets appear 'wobbly.' The concern is not confined to the present, as forecasts suggest that tax refunds in the coming year could act as a further inflationary catalyst. This macroeconomic backdrop is directly impacting investor sentiment, evidenced by a Bank of America survey showing a record number of investors now believe stocks are overvalued. The confluence of accelerating inflation, forward-looking price pressure risks, and peak bearishness on equity valuations points to a highly cautious market environment.

Key Decisions for Investors

• Given the accelerating Core CPI and negative investor sentiment, it is prudent to review portfolio exposure to inflation-sensitive assets and consider reducing positions in highly valued growth stocks.
• Investors should exercise caution before deploying new capital, as the BofA survey indicating a record perception of overvaluation suggests a heightened risk of a market correction.
• Monitor upcoming economic releases closely, particularly consumer spending and wage data, as the forecast for tax refunds driving future inflation suggests these headwinds may be persistent rather than transitory.