The Market Is Near a Delicate Tipping Point as Negative Catalysts Pile Up
A series of reports, issues and announcements will be obstacles for an extended and overbought market.
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The S&P 500 is under pressure on Monday morning following tariff action by President Trump on Mexico and the European Union over the weekend. Investors have handled the flurry of tariff action well up until now, primarily because it is viewed as negotiating action rather than firm policy. However, that view could change if some deals are not announced very soon.
The market’s refusal to sell off on tariffs has trapped bears and underinvested bulls who thought that Trump’s trade policy would be a convenient excuse for the overbought indexes to correct. That has not occurred so far, but there are now several other catalysts lining up that may give the bears some ammunition.
The first potential negative catalyst will be the CPI report on Tuesday. The market has been consistently wrong about inflation, but tariffs have been in place long enough now that they are likely to start having some economic impact. Any sign of an uptick in inflation will give Jerome Powell and the Fed justification for delaying interest-rate cuts. The Trump administration is increasingly very loud about its unhappiness with Fed policy, but if the data deteriorate, it will create extreme pressure on market conditions.
In addition to CPI on Tuesday and PPI on Wednesday, the market will be looking at retail sales, consumer sentiment, and industrial production. The bears have consistently been on the wrong side of the data for months now, but if there is finally some underperformance, it will be a problem due to overbought technical conditions.
Later this week, second-quarter earnings reports will start with several of the big banks, which could also be a negative catalyst. The market has had a great run off the April lows, and that has substantially increased expectations for earnings. If there are some big beats and raises, however, the risk of a sell-the-news reaction is very high. While we still have to wait for big technology reports to roll in, the risk of profit-taking in front of the reports is very high.
The market is at a very vulnerable juncture and there are a host of potential catalysts for a pullback. Stay focused on price action and be ready to aggressively protect recent gains.
At the time of publication, Rev Shark had no positions in any securities mentioned.
