Profit-taking after last week's torrid post-election rally likely contributed to some of this week's pullback in stocks, which is only natural after such a big move. But investors' lingering concerns about inflation and the trajectory of rising Treasury yields were also a factor, according to Fundstrat's Tom Lee.
The key here is the move in one-year, one-year inflation forwards. These derivatives measure expectations for the rate of inflation over the next year -- but beginning one year from now. Lee pointed out that the rate has crept higher from 2% in July to 2.72% recently.
"The drivers behind this have been stronger economic data and inflation reports that have been interpreted as showing stubborn inflation," Lee said. CPI and PPI reports released earlier this week showed the pace of disinflation has stalled. Lee also noted that comments from Fed Chair Jerome Powell on Thursday were "incrementally hawkish." Since then, traders have dialed back expectations for a Fed rate cut in December.
U.S. stocks saw a broad-based selloff this week, although shares of small caps led the way, with the Russell 2000 down 2.6% week to date through Thursday's close, according to FactSet data. The S&P 500 was down 0.8% over the same period, while the Nasdaq Composite was down 0.9%. The Dow was off by 0.5%.
The key here is the move in one-year, one-year inflation forwards. These derivatives measure expectations for the rate of inflation over the next year -- but beginning one year from now. Lee pointed out that the rate has crept higher from 2% in July to 2.72% recently.
"The drivers behind this have been stronger economic data and inflation reports that have been interpreted as showing stubborn inflation," Lee said. CPI and PPI reports released earlier this week showed the pace of disinflation has stalled. Lee also noted that comments from Fed Chair Jerome Powell on Thursday were "incrementally hawkish." Since then, traders have dialed back expectations for a Fed rate cut in December.
U.S. stocks saw a broad-based selloff this week, although shares of small caps led the way, with the Russell 2000 down 2.6% week to date through Thursday's close, according to FactSet data. The S&P 500 was down 0.8% over the same period, while the Nasdaq Composite was down 0.9%. The Dow was off by 0.5%.