US stock indices soared yesterday in a move which took both the S&P 500 and NASDAQ 100 to fresh record closing highs. The Dow came within a few points of its own all-time high, falling a tad short of 40,000 this morning. The mid-cap domestically-focused Russell 2000 was also up sharply yesterday, but has since pulled back a touch. It remains around 14% below its own all-time high from back in November 2021. Yesterday’s broad-based gains followed the release of a clutch of CPI data which indicated a modest softening in consumer inflation from the prior month. Year-on-year Headline CPI pulled back to 3.4% from 3.5%, as expected. Core CPI, which excludes food and energy slipped to 3.6% from 3.8%, also as forecast. The bullish market reaction also saw bond prices rally with the yield on the 10-year Treasury note losing 10 basis points. The CME’s FedWatch Tool now shows an increased probability that there would be two 25 basis point rate cuts this year, while any fears of a rate hike have been completely extinguished. All in all, this appears to be an outsized reaction to the data. Rather than signalling confidently that inflation is back on its downward course, it suggests that there was widespread relief that the CPI data didn’t come in higher. But the bullish reaction also suggests that investors are suffering from a large dose of FOMO, and there are concerns that we could be in the process of a blow-off top with echoes of the moves seen back in early 2020. That was followed by a devastating sell-off triggered by the coronavirus panic which engulfed the world. So the comparison with today only goes so far. But it could be argued that the air up here is quite thin. And in the same way that there’s no obvious catalyst for a decline, it’s hard to discern what could help to lift equities much higher from here. The first quarter earnings season is in the home straight now. Cisco jumped 5% overnight on positive results. Earlier today, Walmart rose 5% on a solid set of results. Chart wise, the S&P is trading back up around the midpoint of the upwardly-sloping trend channel, and the MACD indicates that there’s still decent upside momentum. But time could be running out for the last leg of this rally, and another pull-back can’t be ruled out.