Dow Up, Yields Warn: Inflation Still in Focus for 2025

Investors are increasingly focused on the future of inflation, even as today’s consumer price index (CPI) report met expectations and didn’t cause major market jitters. The CPI release garnered attention, particularly as investors weigh the potential inflationary impact of policies anticipated under Donald Trump’s bid for a second term.

“While today’s inflation data was largely shrugged off, concerns over the longer-term inflation outlook are growing,” said Diana Iovanel, senior markets economist at Capital Economics, on Wednesday. She pointed out that while current inflation isn’t sparking much anxiety, the post-election environment has brought longer-term inflation risks to the forefront of investors’ minds.

Major U.S. indices finished Wednesday mixed: the S&P 500 held steady, the Dow rose by 0.1%, and the Nasdaq slipped by 0.3%.

Keith Lerner, co-chief investment officer at Truist Advisory Services, noted that the CPI report wasn’t a major disruptor, stating, “Today’s data didn’t surprise the market.”

Since Election Day on November 5, the Dow has climbed by 4.1%, the S&P 500 by 3.5%, and the Nasdaq by 4.3%, according to Dow Jones Market Data. This post-election rally reflects optimism surrounding potential growth-oriented policies in a Trump administration, though Lerner highlighted that investors are also factoring in inflation risks, like potential tariff hikes.

Rick Rieder, BlackRock’s chief investment officer for global fixed income, commented that Wednesday’s CPI release sparked heightened interest given the inflationary potential of economic growth combined with policy shifts.

Although inflation has eased significantly from its peak in 2022, it remains above the Fed’s 2% target. Core CPI, excluding food and energy, rose 0.3% in October, up 3.3% year-over-year. Rieder suggested the Fed may reduce interest rates in December, contingent on the inflation trend.

In the bond market, the 10-year Treasury yield rose slightly to 4.448%. Lerner noted that inflation risks under a Trump administration might lead to increased day-to-day volatility in long-term yields.

The recent increase in yields has also impacted bond ETFs, with the iShares Core U.S. Aggregate Bond ETF and Vanguard Total Bond Market ETF seeing pressure. Rieder concluded, “Given new fiscal priorities potentially emerging, inflation risks are understandably in focus,” but acknowledged that much will depend on policy clarity in the months ahead.