CarMax Surprise Raises Concerns About Tariff Impact

After another poor performance on Thursday, all major indices have declined for three straight days for the first time since the low hit after “Liberation Day" in March. There was some effort at a bounce, but a poor bond auction and rising interest rates kept the buyers on the sidelines.

Final second-quarter GDP growth was stronger than expected at 3.8% which is raising some inflation concerns, but a poor report from CarMax (KMX)  raised concerns about how tariffs pulled sales ahead and are now causing a drop in sales.

There is growing concern that interest rates may not fall as hoped, and with the PCE inflation data due on Friday morning, investors are exercising high levels of caution. The high-flying data center names were particularly volatile on Thursday. The Magnificent Seven (MAGS)  and the Russell 2000 (IWM)  were the biggest losers with drops around 1% but it is primarily the expensive growth names that are being hit the hardest.

Even after a three-day drop, there is no major technical damage to the indices. Some individual stocks, especially growth names, have been hit much harder, but these shakeouts are needed in many cases.

The response to the inflation report on Friday morning will be of particular interest. With interest rates moving higher in the bond market, there is growing concern that the Fed may not be as dovish as hoped. That has been the main catalyst for the market recently, and without that, it is going to be much harder to find support and resume an uptrend.

My view is that this is just some much-needed corrective action and not a major top, but that doesn’t mean that it won’t persist for a while. The good news is that third-quarter earnings are coming up soon, and that will change the narrative.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.