Goldilocks Is Once Again Large and in Charge
An in-line CPI report bolsters the belief that inflation isn’t too hot and the economy isn’t too cold.
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The CPI report on Wednesday was almost exactly in line with expectations, but that was good enough to trigger a strong market bounce, with the Magnificent Seven MAGS names leading. The Nasdaq 100 QQQ jumped 1.85% to a new all-time high, and overall market breadth was around 6,000 gainers to 3,600 decliners. The rest of the market lagged behind the QQQ, but there was a clear shift in sentiment after some negative technical developments in the last few days.
An in-line CPI report wouldn’t normally be celebrated, but there has been growing concern that inflation is rebounding and maybe post-election economic optimism has become a bit frothy, and the numbers weren’t too hot, and there are still signs of economic strength.
The market has been running on a Goldilocks economic scenario for a while, which has caused some valuation issues and overbought technical conditions. However, there have been a few days of technical correction, which caused more cautious positioning and helped generate poor positioning, which resulted in a positive reaction to mediocre news.
On Thursday, the PPI report, which is the last major economic report before the Fed interest rate decision next week, will be issued. It is a near certainty now that the Fed will cut by a quarter point. But when everyone in the market is anticipating something, there is a danger that it will create a sell-the-news reaction. Jerome Powell’s comments following the rate decision will be particularly important.
For now, Goldilocks is large and in charge once again, and that is all the market needs to keep running.
Have a good evening. I’ll see you Thursday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
