Interest Rate Worries Pressure the Market as Investors React to Inflation News
Here's what's been tripping up the market and how to react.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Inflation, interest rates, tariffs, and AI spending are in focus as the market contends with a three-day losing streak. So far, the pullback has been relatively mild without any major technical damage to the indexes, but some leading growth names have fallen sharply, and the Innovator IBD 50 ETF (FFTY) is down around 5% from recent highs.
The key question now is whether the PCE inflation report, which is due on Friday morning at 8.30 a.m. ET, will run hotter than expected. Expectations are for a modest 0.2% increase, which would signal an annual inflation rate of 2.9% but if that ticks higher, it will cause concerns about the level of Fed dovishness. The bond market is already signaling the possibility that the market may not see two more quarter-point cuts this year.
Another issue that is tripping up the market is concern that the furious AI spending may not deliver the big payoff that hyperscalers are counting on. There is some cooling off in the data center sector, and a number of leading AI names are seeing profit-taking.
Despite these concerns, the corrective action has been relatively mild so far. Names such as Nvidia (NVDA) and Apple (AAPL) are attracting buyers, and none of the indexes are breaking key support. There isn't any major distribution, and Investor's Business Daily is maintaining its suggested market exposure of 80%-100%.
If PCE comes in hotter than expected, it will pressure bonds and raise concerns about Fed dovishness, however, a deeper correction at this point would help to create a better setup going into third-quarter earnings season. The market wants a dovish Fed, but that is offset to some degree by continued strength in the economy. Unfortunately, more tariff anxiety will be another headwind to deal with.
Stay focused on support levels and play stronger defense as the market grapples with these issues.
At the time of publication, Rev Shark had no positions in any securities mentioned.
