Inflation Comes to the Forefront Friday. It Could Shake Things Up Even More.
The market continues to struggle with tariff uncertainties as it contemplates the health of the economy.
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The market continues to struggle with the fallout from the Trump tariffs, but it faces a new issue Friday morning that could shake things up even more. The PCE inflation report will be issued at 8.30 a.m. ET.
There have been some concerns about sticky inflation, and a hot reading will bring the issue of stagflation to the forefront. Stagflation is the most difficult of economic issues, where the economy slows but inflation is elevated. The Fed doesn’t have many effective tools for dealing with this issue. If it cuts rates to boost the economy, then that may trigger more inflationary pressure, and if it raises rates to battle inflation, that may slow economic growth.
Inflationary pressures are even more problematic right now because aggressive tariffs can have an inflationary impact. Even though they have no idea what Trump will ultimately do, a number of market strategists have been reducing their target prices for the S&P 500 because of tariff concerns.
If inflation readings come in lower than anticipated, that will help provide market support, but on April 2, a new round of tariffs is set to go into effect. We have no idea what exactly will be implemented, but the biggest unknown is the potential retaliation by the European Union and Canada. It is likely to be very contentious, and the uncertainty creates more market pressure.
The tariff and economic issues are heating up at the same time that there is substantial deterioration in technical conditions. The indexes are still holding well above the lows that were hit on March 13, but any retest of that level will be extremely ugly.
The best we can hope for right now is that a new base of support will develop. That will take some time, and then we will be heading into first-quarter earnings reports in a couple of weeks.
As famed trader Stan Weinstein recently stated, “This is one of the trickiest markets I have played in many, many years."
We have some soft action in the early going as we wait for PCE at 8.30 am ET.
At the time of publication, Rev Shark had no positions in any securities mentioned.
