MW Why the U.S. stock market may continue to hold up even as inflation rises again

By Philip van Doorn

Also: Municipal bond ETFs, Social Security timing and the Moneyist's agony column

Some investors had an inflation scare on Wednesday, but the U.S. stock market as a whole seems to have shrugged it off so far.

The Bureau of Labor Statistics reported a 0.5% increase in the consumer-price index during January, which was the largest increase since July 2023. That means the Federal Open Market Committee may continue to hold short-term interest rates steady, as it did following its most recent meeting on Jan. 29. The Fed had lowered the federal-funds rate following its three previous policy meetings. The federal-funds target range is 4.25% to 4.50%, down 100 basis points from where it was before the central bank began lowering rates in September.

While short-term rates have been lowered, the bond market has pushed long-term rates higher. The yield on 10-year U.S. Treasury notes BX:TMUBMUSD10Y was 4.54% early Friday, up from 3.66% on Sept. 17 - the day before the Fed began to decrease short-term rates.

Investors typically expect rising long-term rates to put pressure on stocks, especially when inflation spikes, but the S&P 500 SPX was up slightly for one week through Thursday, up 4.1% for 2025 and was up 9.1% since Sept. 17. All investment returns in this article include reinvested dividends.

Here are explanations of what is going on with inflation and the stock market.

-- Christine Idzelis interviewed Russell Brownback, the head of global macro positioning for fixed income at BlackRock, who explained why the bull market in stocks can continue despite higher inflation. This year the bull market has continued to run, following a 25% return for the S&P 500 and a 26.3% return for the index in 2023.

-- Jeffry Bartash, Greg Robb and Tomi Kilgore dug into five aspects of the January inflation numbers and what may lie ahead.

A different policy challenge for the Fed

President Trump has halted the work of the Consumer Financial Protection Bureau, which was created under the Dodd-Frank banking legislation that former President Barack Obama signed into law in 2010. The CFPB is funded by the Federal Reserve. And this is only one of several heavy regulatory challenges faced by Fed Chair Jerome Powell.

Joy Wiltermuth explained how Republicans in Congress might gain more influence over Fed policy because of this "hole" in the central bank's finances.

A big change for the housing market

Since it was created in 2010, one focus of the Consumer Financial Protection Bureau has been to improve disclosures so borrowers could more easily understand the terms of loans of various types. This has included making clear how interest accrues, how a credit-card lender charges fees and applies principal payments to loan balances that are charged different interest rates, and making clear the slew of fees paid by mortgage borrowers.

Aarthi Swaminathan covered new risks that borrowers and renters might face if the CFPB were to disappear completely, and even how mortgage lenders are wary of moving away from the CFPB's uniform set of rules.

More housing coverage:

-- Mortgage rates dip to lowest level of 2025, lifting hopes for spring home-buying season

-- Trump, and home buyers, could get their wish for lower mortgage rates - if markets cooperate

ETFs can make it easier to enjoy tax-exempt income

In this week's ETF Wrap, Christine Idzelis looked into the growing number of exchange-traded funds investing in municipal bonds, and discussed their yields and their risks. Most interest from bonds issued by state and local governments is exempt from federal income taxes. They are also typically exempt from state and local income taxes for individual investors who live within the states where the bonds are issued.

Christine interviewed Craig Brandon, co-head of municipals at Morgan Stanley Investment Management, who said that muni yields were especially attractive to the "very wealthy." He provided an example:

As of Dec. 31, the yield-to-worst for the Bloomberg High Yield Municipal Index was 5.52%. This would make for a taxable-equivalent yield of 9.32% for an individual in the 40.8% federal tax bracket. The example doesn't cover state and local income taxes. The yield-to-worst incorporates bonds' current prices, maturity dates and earlier call dates, to help investors understand worst-case scenarios for investment returns, barring defaults by bond issuers.

That 9.32% taxable-equivalent yield is of course attractive. But what if you are in a lower tax bracket? The highest graduated federal income-tax rate for a married couple earning between $94,301 and $201,050 is 22%. For the above 5.52% tax-exempt yield, the taxable-equivalent yield would be 6.69%.

Good news in Europe

Even though investors might be concerned about possible conflicts between the Trump administration and various trading partners, European stocks have outperformed U.S. stocks this year, as you can see on the chart above.

Jamie Chisholm explained the recent action and the factors that could support a further rally for European stocks.

Mark Hulbert took a look at the data supporting the rally in Europe. He listed 14 European stocks favored by investment newsletters tracked by the Hulbert Financial Digest.

These stories all include screens of U.S. stocks:

-- 20 stocks of companies that have put up excellent numbers this earnings season, including a surprise

-- Three reasons Nvidia's stock is still compelling, and why it could rise 30% in the next year

-- How growing your dividends may work better than picking high-yielding stocks

Intel's surge and other Big Tech news

Shares of Intel Corp. $(INTC)$ rose 25% for one week through Thursday. They were up 20% for 2025, following a 60% plunge in 2023. Comments by Vice President J.D. Vance on Tuesday about the U.S. semiconductor industry helped send Intel higher.

Here is more coverage of Intel and other developments this week among large technology companies:

-- Intel's stock is on a hot streak. Here's why the rally could continue.

-- Intel has become a political pawn - but it may not need a Trump deal with TSMC

-- Super Micro cuts its outlook - but there is a silver lining supporting its stock

-- AMD's stock faces a fresh risk - and this one has nothing to do with AI

-- Nvidia investors should brace for some Blackwell 'growing pains' to show up with earnings report

A bitcoin bull turns into a bear

The price of bitcoin (BTCUSD) rose 344% for two years through Thursday. But now analysts at BCA Research have called a top for the virtual currency, for one reason.

For this week's Distributed Ledger newsletter, Frances Yue interviewed Changguang Zheng, co-founder and chief investment officer of ZX Squared Capital, a virtual-currency hedge fund, to discuss bitcoin and alternative cryptocurrencies. This is how virtual-currency cycles tend to run over the long term - bitcoin doesn't always dominate the price action.

Don't get cute with Social Security timing

In the Help Me Retire column, Alessandra Malito answered questions from a reader who will reach 62 this year, and wishes to employ a complicated strategy to begin receiving Social Security this year, while still contributing to a 401$(K)$. She worked through the scenarios. Does it make any sense for this reader to claim Social Security before he reaches the Full Retirement Age of 67?

More: My mother did not receive Social Security after my father died. Could a new law change that?

Can you "tax harvest" an investment loss in a Roth IRA?

In the Fix My Portfolio column, Beth Pinsker answered this question while digging further into the purposes of a Roth IRA.

Speaking of taxes...

Here is a sampling of the MarketWatch team's tax coverage, ahead of the April 15 filing deadline:

-- Thinking of making a statement by not paying your income taxes? This is what that could cost you.

-- How much should you pay to do your taxes? Maybe nothing - if you qualify for free tax prep.

-- Rich retirees win if Trump ends taxes on Social Security benefits - but there are plenty of losers

-- Yes, income from your winning Super Bowl wager on the Eagles is taxable. So were winning bets on the election in November.

The Moneyist's agony column

Quentin Fottrell - the Moneyist - helps MarketWatch readers by answering difficult questions that typically involve conflicts over money. Here are recent examples:

-- 'He doesn't drink, smoke, party or gamble': My boyfriend, 55, is perfect in many ways, but gets mad if I ask him to contribute

-- I'm a wife and mother. Can I secretly change my will and leave everything to my daughter instead of my husband?

-- 'We have no prenuptial agreement': Will my wife be entitled to premarital funds if I transfer them into my retirement account?

Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.

-Philip van Doorn

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 14, 2025 12:39 ET (17:39 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.