Investors are so worried about inflation returning that the ISM’s services index’s price reading is sending shockwaves through the market.
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The price index for December's ISM report jumped to 64.4% from 58.2% in November, representing a rise of more than 10%. It's the first time since January 2024 the reading has come in above 60%, noted Steve Miller, chair of ISM's Business Survey Committee. That might only be the start of an unwelcome upward trend. Miller attributes some of the expansion in service activity to"risk management for impacts from ports strikes and potential tariffs" — both of which generate inflationary pressures.to 4.699% during the U.S. trading day, the highest level since April 26. They also dialed down their expectations for a 25 basis points rate cut at the U.S. Federal Reserve's January meeting, pricing in a 4.
But the strong ISM report also suggests the U.S. economy's still doing well, which provides fertile ground for profit growth, said Hainlin. And as David Lefkowitz, CIO head of US equities for UBS, wrote in a Monday note,"profit growth matters more" than valuation for returns over the next 12 months. One data point from one measure of inflation doesn't chart out the path of inflation or corporate health for the year ahead. But it pays to be prudent to tread carefully for now.
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