Inflation Fears Trigger Post-Trump Correction
It was a messy day of action but the volatility could pass quickly.
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The market suffered its worst day of action since the election on Thursday. Breadth was more than three-to-one negative, and new 12-month highs were around the same level as new 12-month lows. The Russell 2000 ETF IWM lost 1.6% and fell into the gap that was created on the morning following the election. The Magnificent Seven MAGS fell 1.3%, and the S&P 500 lost 0.7%. Bitcoin IBIT also faded and gave back 2%.
With the indices and many stocks technically extended, it doesn’t take much news to trigger some selling. The primary news that is driving the pullback is worries about inflation. Both PPI and CPI reports were in line, but the spin was that inflation was staying sticky to the upside. In comments on Thursday by Fed Chair Jerome Powell, he noted that the economy is still strong enough that the Fed doesn’t need to rush to cut rates.
Fed fund futures now indicate that the chances of a quarter-point cut at the next meeting in December are down to 62%, and the pace of cutting in 2025 is now forecasted to be much slower than previously. Interest rates are already back up to where they were in June and July.
The drug sector suffered on news that Robert F. Kennedy Jr. may be named the head of Health and Human Services. Vaccine stocks such as Moderna MRNA were hit again.
It was a very messy day, but the corrective action was not a big surprise. I believe that this is just a bout of volatility and that some new support will form fairly quickly. I’ll be looking for some new buys in the weeks ahead.
Have a good evening. I’ll see you tomorrow
At the time of publication, DePorre was long IBIT.
