Inflation Worries Take a Back Seat as Traders Fret About Possible Recession
Tariffs and possibility of government shutdown add to market uncertainty as we await PPI report.
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A much better-than-expected consumer price index report on Wednesday did little to boost the market. The S&P 500 and Nasdaq 100 QQQ managed gains, while the Dow Jones industrial average and Russell 2000 IWM finished in the red.
The inflation issue just doesn’t hold the same level of concern that it has since the Covid-19 recovery. The market is happy to see rates coming down, which gives the Fed the flexibility to cut rates more later in 2025, but the problem is that rates are coming down in part because the economy is slowing. The softer demand is preventing a rise in prices.
Another reason the CPI report didn’t generate much celebration is that the market is still worried about the possible inflationary impact of tariffs. Tariffs are the great unknown right now and many are skeptical about whether Trump will be able to use them to accomplish his economic goals.
The producer price index report is due Thursday morning, and then an important Consumer Sentiment reading comes out on Friday. But tariffs will continue to be the main market mover. Investors will be watching closely to see if Trump will impose retaliatory tariffs on the European Union after it raised tariffs on billions of goods.
Another issue that may distract the market is the battle to keep the government open. The Democrats are proposing their own short-term bill to avoid taking the blame for a government shutdown, but they are in a very difficult position politically. If a shutdown does occur, it is likely to be a negative event for the market as it will create even more uncertainty.
Technically, there has been a little bounce action, but here is a good reminder from Investors Business Daily: Avoid the pitfall of looking to catch former stock market leaders on sale, especially those who have been hit hard by institutional selling in recent weeks. Some will go on to form new bases, while others could stay on downtrends and be dead money for months.
It is still far too early to proclaim a market bottom. It is possible that a low has been hit, but more positive action is needed to reduce the risk of buying.
There are some good opportunities out there, but continue to watch closely and keep plenty of cash in reserve.
We have flat action early on Thursday as we await the PPI report.
At the time of publication, DePorre had no position in any security mentioned.
