We’ve had two very big developments since last week — two higher-than-expected inflation reports… and the S&P 500 (SPY) response to that says a lot about where we are now in terms of the ongoing bull/bear tug-of-war game . Keep reading to find out what it says….
(Enjoy this updated version of my weekly commentary originally published Feb. 16e2023 in the POWR Shares Under $10 Newsletter).
On Tuesday, we got the latest monthly consumer price index (CPI) report from the Bureau of Labor Statistics.
The report showed that prices rose by 0.5% monthly and by 6.4% over the past year. Both numbers were higher than most economists had expected.
After investors bought and panic sold in 2022 based on inflation-linked data, it seemed certain that we would see massive selling… on both days, but Tuesday ended flat (with the Nasdaq index even up), and all three major indices have almost completely made up for their losses this morning.
Then this morning we got the January Producer Price Index (PPI) report. Again, PPI showed prices rising (at a rate of 0.7% month over month), which was faster than the 0.4% economists had predicted.
It looked like we were in for a repeat of Tuesday, with stocks falling on the news and then recouping their losses before the close.
And then, in the last hour of trading, the market tumbled again. Ultimately, the S&P 500 (SPY) closed 1.4%. The Nasdaq closed 1.8% lower.
So, what’s the deal?
It felt like Tuesday’s results were already somewhat baked into market prices. In fact, on Tuesday I wrote…
We all know by now that inflation will not fall in a straight line over the coming months, but inflation has still fallen significantly from its peak. Investors seem to have come to believe that the Fed is unlikely to cut rates in 2023 — something Fed Chairman Jerome Powell has been proclaiming for months.
And yet investors have not panicked and sold all their shares.
In other words, the bulls are winning this round of tug-of-war, and investors are “risky,” buying up stocks previously considered “too volatile” and “poor investments for a high interest rate environment.”
But things were a little different today… and that’s because we had the addition of two Fed officials who said they had considered the possibility of 50 basis point hikes. That, plus a second hot inflation reading, seemed to cool all buying.
Now, even with the end-of-day selling, the S&P 500 is still sitting around 4,100, which is our key support/resistance level.
The index’s ability to stay above this country could potentially mean that the bull rally is still underway. If it drops below, we could see a significant dip lower.
Because the market reversed so suddenly at the end of the day, it’s hard to know what market sentiment will be going forward. I wonder what tomorrow will bring.
This could be a tough round for the bulls to win, but if they do, it could be the start of a strong leg higher up.
And when the bears get ahead, we still protect ourselves with sales triggers and by taking our profits while they are still quite profitable.
What to do now?
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All the best!
Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares closed Friday at $407.26, down $1.02 (-0.25%). Year-to-date, SPY has gained 6.49% versus a percentage increase of the benchmark S&P 500 index over the same period.
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Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth And POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.