Inflation jump pulls the rug away
It was a mixed close for US stock indices last night with modest losses for the NASDAQ 100 and S&P 500, and a small gain for the Dow. It was the Russell 2000, the US ‘small cap’ index of domestically-focused companies which outperformed, closing 1.8% higher. Bear in mind that while the big three are trading at or near their all-time highs, the Russell is 17% adrift from its November 2021 record. Nevertheless, some commentators believe that the Russell’s gains are evidence that market breadth is improving, and that there’s more value in smaller stocks than in the ‘Magnificent Seven’.
Markets were upended following the release of hotter-than-expected US inflation data. Headline CPI was expected to fall back below 3.0% year-on-year, down from +3.4% in December, to hit its lowest level since April 2021. Core CPI, which excludes food and energy, was expected to fall to 3.7% from 3.9% previously. But Headline and Core came in at +3.4% and +3.9% respectively. The dollar soared on the news while stock indices and precious metals slumped. The CME’s FedWatch Tool now suggests that the first 25 basis points Fed rate cute will be in June, rather than either March or May. In addition, the Tool suggests that there may only be three or four 25 basis point cuts this year, down from 6 two weeks ago.
The news took investors by surprise, with all the major US indices falling over 1% on the day. Will that be enough to drive out the weaker hands and reset the market? Or do we need more of a pull-back? This is shaping up to be the first significant sell-off since the rally began over three months ago. As can be seen on the 2-hour chart above, there’s a thumpingly large gap on the chart now. But there are no rules saying it will get filled anytime soon.
Markets were upended following the release of hotter-than-expected US inflation data. Headline CPI was expected to fall back below 3.0% year-on-year, down from +3.4% in December, to hit its lowest level since April 2021. Core CPI, which excludes food and energy, was expected to fall to 3.7% from 3.9% previously. But Headline and Core came in at +3.4% and +3.9% respectively. The dollar soared on the news while stock indices and precious metals slumped. The CME’s FedWatch Tool now suggests that the first 25 basis points Fed rate cute will be in June, rather than either March or May. In addition, the Tool suggests that there may only be three or four 25 basis point cuts this year, down from 6 two weeks ago.
The news took investors by surprise, with all the major US indices falling over 1% on the day. Will that be enough to drive out the weaker hands and reset the market? Or do we need more of a pull-back? This is shaping up to be the first significant sell-off since the rally began over three months ago. As can be seen on the 2-hour chart above, there’s a thumpingly large gap on the chart now. But there are no rules saying it will get filled anytime soon.
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