Will Trade Progress Diminish the Risk of a Recession?
A high level of skepticism and doubt is aiding positive price momentum, but here's the key issue for this market.
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Market sentiment for much of 2025 has been extremely bearish based on the argument that the Trump tariff turmoil would slow economic growth and cause inflationary pressure. Many pundits and strategists believe that a recession is likely.
After the trade agreement with China on Monday, some concerns about a recession have abated, and there is increased hope that the Fed may now be more amenable to interest-rate cuts. However, there is still widespread skepticism about the economy and President Trump’s economic policies. Conditions for an economic slowdown have been building since the Biden administration, and even without the trade and tariff turmoil, many economists thought a recession would occur.
Economic data is taking on added importance at this point as market participants evaluate whether it is too late to stop the repercussions of the uncertainty about tariffs that existed for several months. On Tuesday morning, the CPI report will be issued and will be an important indication of whether some price pressures were already created, as there was a rush to buy before tariffs hit. A lower-than-expected CPI will likely boost the market and raise hopes that the Fed will cut rates sooner rather than later.
Goldman Sachs believes that there will be an uptick in inflation, with a 0.3% increase in core CPI occurring, which would break the recent downtrend in that data. This would likely push back the chances of a rate cut to the fall and be a market negative.
The most bullish thing about this market is the extremely strong price action. The high level of skepticism and doubt is adding fuel to the fire. The major indexes have cut through some very tough resistance levels, and there is broad strength.
The key issue now is the formation of new support. A digestion of gains is needed, and the strength of interest in dip buying will be key. The market can afford some profit-taking and givebacks at this juncture, but if the Monday morning gap starts to fill and the 200-day simple moving average is tested, then it is going to quickly raise concerns.
Currently, technical conditions look very good, but the size of this move makes entry points very difficult. Buyers are unlikely to chase at this point, but the question is how fast they will jump in on shallow weakness.
We have some slight weakness as we await the CPI report at 8.30 a.m. ET.
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At the time of publication, Rev Shark had no positions in any securities mentioned.
