News Flow Turns Negative as Corrective Action Gains Momentum
Here's what investors will be grappling with over the next few days and my game plan for dealing with it.
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The market rally, driven by a dovish Fed and a boom in AI spending, has stalled over the past two trading sessions. There are signs of stabilization on Thursday morning, but investors will have to grapple with several Fed speakers, important inflation data on Friday, and growing concern about a government shutdown next week.
As is typically the case, the market is finding good excuses and explanations for the much-needed corrective action. It is the price action that drives the key headlines rather than the other way around. When price action weakens, investors work harder to find negatives to explain it, and that becomes the prevailing negative.
Both cryptocurrencies and the Magnificent Seven (MAGS) are under mild pressure early Thursday morning as there is talk about the Trump administration making permanent job cuts if the Democrats refuse to agree to a bill to extend the budget issue. Both sides are digging in and working to shift blame for the repercussions of a potential shutdown.
The PCE inflation report due out on Friday morning will also be particularly important. Currently, there is around a 60% chance of two more quarter-point rate cuts this year, but there has been more talk recently from Fed members questioning the level of dovishness. There are more speakers on Thursday, and a hot inflation number on Friday could cause some problems.
Nvidia (NVDA) has an interesting price target raise this morning by Barclays to $240 from $200. The analyst believes there will be $2 trillion worth of AI capacity added by the end of the decade and that Nvidia will be the primary beneficiary of that spending.
While there are short-term issues for the market, the good news is this corrective action is needed and hasn’t caused any major technical breakdowns so far. It is likely to continue, but the promise of third-quarter earnings reports will likely bring in stock pickers looking for opportunities on the pullbacks.
My game plan is to tighten up stops a bit and be more selective with new buys. I’ll likely raise my cash levels if there are more tests of support levels.
At the time of publication, Rev Shark was long NVDA.
