Market Begins to Doubt Stagflation Warnings as CPI Looms
The market action was choppy following positive hints on China negotiations.
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Market action was choppy on Tuesday as Commerce Secretary Howard Lutnick stated that negotiations with China went "really, really well." However, a very important CPI report is due on Wednesday morning at 8:30 a.m. ET, and that kept some buyers parked on the sidelines.
It is anticipated that May CPI will tick higher as some pressure from tariffs starts to flow through the supply chain, but the economic news has consistently been better than expected. The bears have been warning that the danger of stagflation still exists, but after so many false calls, market players aren’t taking the predictions as seriously as they did when tariffs were first implemented.
Breadth was solid at around two-to-one positive, and there were over 550 new 12-month highs. The Russell 2000 IWM led early in the day, but the action rotated into bigger cap names as the day progressed. The Magnificent Seven MAGS won the day with a gain of more than 1%. Tesla TSLA was the primary driving force, and a rebound in Apple AAPL helped the bullish cause.
Despite the good price action and the steady gains, there is still a high level of pessimism. Goldman Sachs GS put out a report entitled “Trouble Brewing Below the Surface” and stated that it is time to start selling "This Junk Rally."
That view is fairly common and has been for a while, which is one of the reasons that the trend continues to persist. The market has been climbing a wall of worry on a constant diet of inflows from investors who are suffering from FOMO.
The big problem is that conditions are ripe for a sharp drop if there is even a hint of bad news. There will be a rush to lock in recent gains at the first sign of weakening economic strength or a rebound in inflation. The constant teasing of positive tariffs and trade news is proving a bid, but it is getting old, and something substantial is needed soon.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
