Market Stays Positive, But There's One Thing Holding Back the Bulls

Market action started poorly on Thursday morning following comments from President Trump about the possibility of enacting unilateral tariffs on countries that have not made a trade deal. Commerce Secretary Lutnick contributed to the weak start with comments about the difficulty of making a trade deal with the European Union.

The mood was lifted following a better-than-expected PPI report. Once again, predictions of higher levels of inflation proved to be incorrect. Due to consistently tame inflation numbers, Fed Fund Futures are now indicating two full rate cuts in the fall.

While there was good buying support and dip buying, the market’s biggest problem is that upside momentum is minimal. Stocks are pushing to the upside, and breadth is positive, but this is not a roaring bull market with aggressive traders chasing entry points in extended stocks.

The primary issue holding back this market is the widely held belief that the economy is on the cusp of rolling over and inflation is about to rebound. Economists have been predicting this for months and have been wrong so far, but they are convinced that they are just a little too early, and the impact of tariffs is sure to be felt.

There are indications of slowing employment, and there is considerable anecdotal evidence from retailers and others involved in the supply chain that price hikes are forthcoming. One big shift that has helped to offset this concern is renewed vigor in the AI sector. After a period of stagnation, AI is now back in its leadership role and is not as significantly impacted by inflation or economic growth concerns as other areas of the market.

The very slow and steady rise in the indexes makes trading difficult. Until there is some corrective action, it will continue to be difficult to put more capital to work.

Have a good evening. I’ll see you Friday.

At the time of publication, Rev Shark had no positions in any securities mentioned.