Can the Market Continue to Hold Up Against More Inflationary Pressures?
Trading has been tricky because of inconsistency. Here's the best approach right now amid the volatility.
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Market action is mixed on Thursday morning as investors await the PPI inflation data and digest a hot CPI report. The indexes recovered nicely on Wednesday from a much hotter-than-expected CPI report, but it was a two-tiered market with interest rate-sensitive stocks under heavy pressure while big-cap technology and other less-sensitive stocks bouncing back strongly.
In addition to dealing with an upward spike in interest rates, the market is also dealing with a few very good and bad earnings reports and optimism that President Trump is progressing in dealing with the Ukraine-Russia war. European stocks and the euro rose on the headlines about the start of negotiations.
The market handled the hot CPI report reasonably well, but the inflation issue will not disappear quickly. Trump is expected to announce reciprocal tariffs on Thursday, which will likely generate another market reaction.
What is helping the market deal with the inflationary pressures is that economic strength and optimism are still strong. An uptick in inflation is not a big problem if the economy is strong enough to produce real growth. So far, that is the case, but tariffs will call that into question.
Reciprocal tariffs will add some uncertainty because the repercussions are unknown. The tariffs are likely to produce some immediate price increases, but demand and supply should shift over time, which may be deflationary if the economy operates efficiently. In the short term, tariffs will add uncertainty, and that is always a market negative.
Trading has been quite tricky recently because of inconsistency. Day trading is the best approach right now because there is too much volatility overnight. We’ve had a pattern of alternating ups and downs that make a trend-following approach very difficult.
Early action is flat, but we have PPI at 8.30 a.m. ET and the likelihood of a tariff announcement later in the day.
At the time of publication, Rev Shark had no positions in any securities mentioned.
