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CPI data could be catalyst for already historic S&P 500

As the S&P 500 (^GSPC) continues to dominate the conversation on Wall Street, many investors are wondering whether or not the index can continue its hot streak or if upcoming CPI (Consumer Price Index) data and economic headwinds may put a damper on it.

NewEdge Wealth Senior Portfolio Manager and Head of Fixed Income & Macro Ben Emons joins Yahoo Finance to discuss the S&P 500's performance and why he is feeling bullish on the broader markets.

"The CPI will be a catalyst for that momentum because everybody is looking at these [interest] rate cuts, and we've taken back some of those...," Emons comments on the upcoming CPI data and potential Federal Reserve rate cuts "There's a lot of expectations that the Fed can move, but [they're not] in a rush, yet we're reaching record highs, so I think the rate cut needs to stay alive in order for that momentum to keep going."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

BRAD SMITH: When stocks trading, well, lower right now, just after the opening bell. Mixed says-- the NASDAQ says, hold my beer here. Flat, just barely to the upside. The Dow and the S&P 500, though, in the red.

This comes after a historic milestone. At the end of Friday's trading session, the S&P 500 closing above 5,000 for the first time ever. Optimism, as well, around tomorrow's CPI print might keep market momentum strong.

For more on this, we've got Ben Emons, who is the new NewEdge Wealth Portfolio Manager. Great to have you here in studio with us. It's always been one of the huge things that we've been tracking within this market is just trying to figure out whether or not this momentum can continue at this juncture, and what it would take.

BEN EMONS: Yeah. The CPI will be a catalyst for that momentum because everybody is looking at these rate cuts. And we've taken back some of those. We're about seven priced in. We're about now a little bit more four. There's a lot of expectation that the Fed can move. But they are in a rush. Yet, we're reaching record highs.

So I think the rate cut needs to stay alive, in order for that momentum to keep going. So it's interesting to see these small caps today outperforming for the first time. A lot of people talk about rotation that it wasn't happening this year. And yes, the Russell has lagged, the Mag 7 and the tech index quite significantly.

So the CPI can be a catalyst for that change, perhaps, because if CPI is to moderate, economic growth will be very supportive. And that, I think, will boost the rotation to this. Market.

RACHELLE AKUFFO: So do you think this takes recession fears off the table, especially when you look at the performance right now?

BEN EMONS: I think they're completely off the table already like several months now. I even make the case that the econ bear, so to speak, that just been plainly wrong for more than a year, because what we're really dealing with is an inflation rate that was excessive. But the Fed did enough tightening put in the system to get inflation nicely gently down.

We're getting a little bit help from China too, by the way, that higher and deflation for now. And so recession would have only happened, if we're getting a major collapse in prices. That doesn't seem to be going on. So this is the soft landing, if you will, or the no landing. And I think the breathing room for small caps.

BRAD SMITH: Then Federal reserve Chair Jerome Powell is expected to keep rates steady in March. Earlier today, I actually had the opportunity to catch up with Steve Pagliuca, Bain Capital Senior Advisor. Here's what he had to say about the Central Bank's path towards potential rate cuts this year. And then we'll get your reaction on the other side.

STEVE PAGLIUCA: There's some overexuberance around cuts. And people have seen lower interest rates. But, again, I think, if they look at history, that's an anomaly.

BRAD SMITH: And so with that in mind here, the market's anticipation that the Fed will cut, and that we're pricing this in way too early perhaps versus the higher for longer for an extended period of time more so than we thought was possible. What does that even do to the portfolio positioning that people should be considering at this juncture?

BEN EMONS: Yeah. It's a dichotomy. And I think it is still speaking to that cash, as we talked the last time, in the trash. You can put it somewhat in the trash, but maybe not entirely.

Secondly, higher for longer rates does mean a stronger economy. It would-- otherwise, we would not have those higher rates. We would really go back to where we came from pre-pandemic with a sluggish economy. I don't know what will happen as of January 2025 with the new president in the White House, and how old policy is going to change, and what the economy is going to do.

But I think this year will be much about, yes, you could expect this Fed to stay somewhat higher for longer really because of a better economy. Otherwise, I think the Fed will be moving much quicker the rate cuts. Can they cut rates? They can. But then they're thinking it's about the rate is here. And inflation rate is the decline of some room.

But my calculations, that room is not much. I think last week was an important signal from the Fed-- several of them-- that they're not looking at three cuts, but, perhaps, more like two. I think that's what's in the market's mind now.

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