The Inflation Excuse Is Waiting in the Wings
Chip stocks are rebounding, but nervousness about inflation is building as momentum cools.
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S&P 500 futures are up 0.2% on Wednesday morning, due to a rebound in semiconductors after President Trump’s last-minute call to Jensen Huang to join the China delegation. Nvidia (NVDA) is up about 2.5% in overnight trading, and Chinese AI names jumped sharply on bets that Huang’s presence could help ease export restrictions on the H200.
April PPI is out at 8:30 a.m. ET, the follow-up to Tuesday’s hot CPI that knocked the Nasdaq down 0.7% and hit Intel (INTC), SanDisk (SNDK), and Micron Technology (MU) for substantial losses.
The Wall Street Journal‘s front page this morning is “Wall Street Is Getting More Anxious About Long-Term Inflation,” with surging energy prices pushing investor inflation expectations to multiyear highs. That issue is going to be casting a cloud over the market for a while.
Inflation Is the Excuse, Not the Cause
Current market conditions present several reasons to be cautious, but inflation is not really the problem. It is a convenient excuse that will receive blame when selling pressure finally gains traction.
Markets that are stretched, overbought, and concentrated in a narrow leadership group find a reason to correct eventually, and when that selling starts, the inflation problem will look prescient and the bears will claim they knew it was going to be an issue. The reality is that the market has run too far, leadership is too narrow, and the catalyst calendar is thinning out as earnings season ends.
Seasonally Weak and Light on Catalysts
We are heading into a seasonally weak period with few obvious positive catalysts to drive new upside. Earnings season is winding down, retirement and 401(k) inflows slow this time of year, and “Sell in May” gets attention for a reason.
The Trump-Xi summit Thursday and Friday is the next focal point, with a possible Iran headline or chip thaw tied to it. Beyond that, the catalysts are more granular. PPI today, Cisco Systems (CSCO) and Applied Materials (AMAT) after the close, Alibaba Group (BABA) before the open, and then a market that has to digest what it has and figure out what comes next.
My Strategy
The strategy is to keep raising cash on strength, manage existing positions closely with tight stops, and keep hunting for developing chart setups. There is no rush to load up because there are few catalysts on the horizon to drive a sustained move, but this is a good environment for initial positions that I can track and add to as setups develop. Building a watchlist of names showing constructive action is more valuable right now than chasing extended momentum.
I feel good about protecting recent gains and am not feeling any fear of missing out by raising my cash levels to the highest in a long time. Cash gives you the freedom to watch the inflation excuse play out without needing to react to every headline. When the selling pressure finally hits, the names worth buying will be obvious, and the hunting will be a lot more productive then.
Stay focused on the flow of the price action and let the rotation tell you where the next opportunities are setting up.
At the time of publication, Rev Shark was long NVDA.
