Trying to Navigate This Market Based on the Economy? Throw Logic Out the Window
There appears to be a direct correlation between inflationary worries and a higher market, which makes absolutely no sense.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The CPI Report that caused so much consternation on Wednesday seems to have been completely forgotten on Thursday as the indexes rampaged higher. The Nasdaq 100 QQQ recovered all of its losses, but breadth could have been better than 5,600 gainers to 3,600 decliners.
The PPI was a little better than expected, and the bond auction wasn’t terrible, which helped sentiment, but what really moved the market appeared to be computerized algorithms that jump in and buy when there was some obvious negative news. This catches many market players out of position and creates short squeezes and FOMO.
There was no real reason for the big bounce in equities. Bonds continued to sell off as interest rates moved higher, and the Fed is very likely to push interest rate cuts back even further.
If you are trying to navigate this market based on the economy, it is very difficult since there doesn’t appear to be any logic to it.
As I’ve written many times recently, the most notable market action recently has been the ability for the indexes to continue to trend higher while interest rate cuts keep being pushed back further and further. There appears to be a direct correlation between inflationary worries and a higher market, which makes absolutely no sense at all.
One of the reasons for this illogical action is that there is still quite a bit of optimism about upcoming earnings. We will start off with some banks in the morning, but the big issue this quarter will be whether or not inflationary pressures are doing anything to slow down corporate earnings. The market doesn’t seem to think so, and that is why stocks like Nvidia NVDA immediately recover from pullbacks.
Another related reason for this action is that big-cap technology and the Magnificent Seven are seen as not being impacted by inflation. They have the AI theme to drive them, and most of the big names carry little debt.
My best advice is to stay focused on price action and not spend too much time trying to figure out how the economy is impacting equities. If you are using logic, you are likely having a very tough time.
Have a good evening. I’ll see you Friday.
At the time of publication, James "Rev Shark' DePorre had no position in the securities mentioned.
