Stock Market Action Shows Just How Much Investors' Concerns Have Shifted

A few months ago, a CPI report with an annual increase of 2.8% would have ignited a rampage of buying. However, investors' concerns have shifted recently, and the favorable inflation report generated a very mediocre market response.

The better-than-expected CPI helps to elevate worries about stagflation and raises expectations for a Fed interest rate cut, but the market is now more worried about the impact of tariffs on inflation as well as concerns about slowing growth.

An additional complication is that the poor market action has created a substantial amount of technical damage. Markets that have suffered this sort of breakdown don't bounce back that quickly. Many holders are worried about the long-term health of the market and will use bounce action to reduce their exposure to equities.

At this point, the most common stock chart pattern is a large, sharp drop followed by a small two-day bounce. This pattern suggests that the lows will be retested rather than generate a straight-up V-shaped move.

The market is still grappling with a very high level of uncertainty, which keeps volatility elevated. On Thursday, the market will consider the PPI report, and then, on Friday, the Michigan Consumer Sentiment Report will be released. Sentiment is going to be of particular interest given recent market action and the economic uncertainty that President Trump has created.

The good news is that the small bounce action on Wednesday is the first step in creating some support on the charts. There is now a clear low to serve as potential support. If that level is tested and holds, then the odds of a new uptrend will improve.

Have a good evening. I'll see you Thursday.

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