Profit Taking Threatens to Reverse Market's Positive Momentum
There are some signs of fatigue among buyers out there.
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A lower-than-anticipated PPI report on Thursday morning calmed some concerns about inflationary pressures and stagflation. That positive news helped hold the indices near recent highs. Upside momentum has cooled after a fast and furious rally, but breadth was nicely positive, and all the indices managed gains. The Magnificent Seven MAGS lagged after several days of outperformance and finished with a loss of 1%.
Strong markets tend to stay sticky to the upside due to aggressive dip buyers and fear of missing out on further upside. Continued positive news flow on both the trade and economic fronts helped as well.
Buyers are showing some signs of fatigue, and it won’t take much negative news to trigger some profit-taking. One troubling news report was that Walmart WMT is expecting price increases soon due to tariffs, which are still sizable, although greatly reduced.
There is a large supply of economic pessimists out there, but so far, they have not found much ammunition in the recent data. On Friday, we will see housing starts and Michigan Consumer Sentiment, but they are unlikely to reflect anything very dire.
The biggest positive on Thursday was that bond yields finally reversed lower after three straight sessions of gains. There is increased speculation that the Fed will cut rates twice this year to help fight off a recession. The soft PPI news helped to alleviate some of the growing worries about stagflation.
The economic worries are still out there, but the bulls are in control of the price action, and that is the only thing that really matters.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
