• Prices rose again in November, but stocks are taking off as well.
  • Markets are looking past stubbornly high inflation and are focused on other catalysts.
  • Here’s why price growth sparked by tariffs could weigh down stocks in 2025.

Inflation surged at the fastest rate in four months in November, and while investors don’t seem concerned, several top strategists think they should be.

Price growth, as measured by the consumer price index (CPI), rose for a third straight month with a 2.7% increase that outpaced October’s 2.6% growth and September’s 2.4% jump. Bond yields, which are correlated with inflation and interest rate expectations, leaped on the news.

But instead of wilting, US stocks caught fire. The S&P 500 had its best session since the day after the election, and the growth-heavy Nasdaq Composite topped 20,000 for the first time.

Investors were upbeat because last month's inflation reading matched consensus estimates.

"A CPI print in line with expectations is a relief to a market that did not want any surprises interrupting this year-end Santa rally," Lara Castleton, the US head of portfolio construction and strategy at Janus Henderson Investors, said in written commentary sent to Business Insider.

Following this print, the market believes an interest rate cut next week is almost guaranteed.

"The market decided that a cut next week is now all but priced in, which is indeed a plus," wrote Steve Sosnick, the chief strategist at Interactive Brokers, in a message to BI. "But this market does nothing in moderation, so it's off to the races for the Mag 7 and related stocks."

Higher prices could complicate a strong setup

Major investment firms are almost universally bullish heading into 2025, and for good reason.

Economic growth is still strong, corporate earnings are poised to pop, interest rates are down from their peak, tax cuts may be on the horizon, and the unemployment rate remains rather low. Add those factors up, and it's not hard to see why stocks are at all-time highs.

However, persistent price growth could upend that thesis, especially if it means interest rates stay higher for longer. That's far from implausible, leading strategists say — especially if President-elect Donald Trump's tariffs result in a trade war that puts pressure on consumers.

"Inflation may remain stubbornly sticky near current levels for a time," Rick Rieder, BlackRock's chief investment officer of global fixed income, said in written commentary on Wednesday.

If so, the Federal Reserve might not be able to cut rates as much as they'd otherwise hope to.

"Price pressures have eased considerably, but every passing month provides further evidence of a stickiness to inflation that will challenge the current forecasts for interest rate cuts next year," Jim Baird, the chief investment officer at Plante Moran Financial Advisors, said in written commentary. Baird also said: "The path for 2025 is less clear, but a course correction by the Fed toward holding rates a bit higher for a bit longer appears increasingly probable."

Gargi Chaudhuri, the chief investment and portfolio strategist for the Americas at BlackRock, agrees. She said, "interest rates will continue to remain higher than previously thought next year" in written commentary after the CPI report, even though some aspects of inflation came down.

Tariffs could cause headaches, or not

Although the market is generally optimistic about the upcoming Trump term, most strategists and economists aren't happy about the taxes on imports that he's planning to impose.

"With the incoming Trump administration likely to impose tariffs on imports and significantly tighten immigration policies, prices could re-accelerate further," said Ronald Temple, the chief market strategist at Lazard, in written commentary. "If that's the case, December could represent the last cut in the easing cycle."

Rieder, BlackRock's bond guru, also indicated that uncertainty about tariffs — as well as immigration reform and deglobalization — make it hard for him and the Fed to project inflation.

"Several crucial factors for the US economy appear quite favorable and constant in the years to come, although there are also a number of uncertainties that cloud the inflation outlook and complicate the Fed's rate cut recalibrations," Rieder remarked.

It's worth noting that not everyone in markets is against tariffs. Sinead Colton Grant, the chief investment officer at BNY Wealth, thinks Trump could be bluffing, and even if he's not, such a protectionist policy could be a huge help for certain American industries.

"What seems to be happening across the industry is a straight read across, from 'tariffs equals higher prices equals inflation,'" Colton Grant told Business Insider earlier this month. "It's much more complicated than that."

But the consensus among economists is that widespread tariffs lead to softer economic growth and higher prices. The stock market doesn't seem to be pricing in either.

"Reignition of inflation is one of the top concerns for clients next year, particularly surrounding uncertainty of policy proposals in the next administration," Janus Henderson's Castleton wrote. "And while this print shouldn't force that reality to interrupt the holiday season, investors should be [wary] of impacts higher inflation might have on their portfolios and be prepared accordingly."

Castleton didn't share investment ideas in her commentary, but Colton Grant had told BI that she's bullish on stocks in sectors tied to economic growth like energy, financials, and industrials. The former often benefits from higher inflation since a jump in oil prices would pad its profits.