The Biggest Danger the Market Faces Right Now
If the market wants an excuse for a deeper correction, this will likely be it.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The market action has been choppy and inconsistent for a couple of weeks, with the S&P 500 stuck in a trading range just over its 50-day simple moving average. The bears have been unable to dig their claws into the market, but the bulls haven’t been able to generate sustained momentum either.
The problem is that while there is still a high level of economic optimism as President Trump rushes to implement policy, there is also increased uncertainty. The market is uncertain about the impact of tariffs, the level of inflation, and the potential for growth.
Another confusing issue is the dramatic shift in the Magnificent Seven. The only Mag 7 name that still has some luster is Meta META, while the other six names are no longer leaders. Without the Mag 7 there isn’t any clear leadership.
AI is still a major theme, but the stocks that are benefiting from it the most are now those that are using AI as an application rather than developing AI infrastructure. Palantir PLTR and Cloudflare NET are the best examples of AI leadership, but the problem is that these stocks are becoming extremely expensive.
Outside of the AI software group, there is very mixed action. While there are periodic bouts of rotational action, it is not sustained and small-caps IWM are back to lagging. There are some pockets of speculative action with IBD growth stocks leading but that reversed down on Tuesday.
The biggest danger the market faces is renewed inflationary pressures. Fed Chair Jerome Powell repeated on Tuesday that the Fed is in no rush to make any policy changes. He is happy with the strength of the economy, but the market now expects just one quarter-point cut in 2025.
Investors will be watching the CPI report at 8.30 a.m. ET on Wednesday very closely. Although it is expected to tick up slightly, there is great concern that Trump’s policies, especially tariffs, will also create a tailwind for more inflation.
If the market wants an excuse for a deeper correction, the most likely excuse will be inflation worries and increased economic uncertainty. So far, there is good technical support, but the increased volatility is weighing on sentiment.
At the time of publication, Rev Shark had no positions in any securities mentioned.
