CPI Report Will Offer a Sentiment Test After Toppy Action
Has the market fully discounted a steady diet of positive news?
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Blow-out guidance from Oracle ORCL and a weaker PPI report than expected provided the bulls with some jet fuel on Wednesday, but after an initial spike higher, the buying dried up. A bounce in the last few minutes of trading prevented a day-low close, but the market lost its energy intraday, which raises concerns about possible toppy action.
When great news doesn’t produce stronger results than expected, there is a likelihood that it is already discounted by the market. There has been a steady trend higher recently on good news about interest rate cuts and strong AI demand, but upward momentum has been slowing, and the number of new 12-month highs has contracted to just over 200 names.
Breadth on Wednesday was poor, with just 2,300 gainers to 3,100 losers, but the fallout from the Oracle celebration covered it up. The Magnificent Seven MAGS did very poorly with a loss of 0.4% and a 3% drop in Apple AAPL.
The CPI report that is due out on Thursday morning will be an interesting test of market sentiment. It is the final piece of data prior to the Fed meeting next week and will likely cement a rate cut. With a rate cut almost a certainty, will a cool CPI report matter? It may impact the chances of further cuts, but at this point, the market is anticipating peak Fed dovishness.
There was still a good number of small stocks moving up 10% or more, but the stock picking is becoming much more difficult after some big moves. We need resets to produce better charts, and conditions are ripe for a sell-the-news reaction to some good economic news or a dovish Fed.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
