The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Breather
Futures dipped slightly overnight and overseas markets traded down small as well. US/Iran diplomacy continues to be bumpy and crude climbed again, reflecting the difficulties. Yields climbed across the curve as well. At 8:30 AM, CPI (3.8% vs 3.7% est & 3.3% prior) printed slightly hot markets reacted. The S&P opened down about 25 points and dropped throughout the morning, bottoming around 1 AM, down more than 70 points. Dip-buyers acted in the afternoon, repairing most of the intraday damage. Capital flow was slightly elevated at 110% today.
The slightly hotter CPI data was certainly unwelcome but it didn’t rattle markets very much. Whether that’s a sign of the markets robustness or willful ignorance is a matter of debate. Markets get another inflation datapoint tomorrow with the PPI (4.8% est vs 4.0% prior) but based on today’s trading, anything close to the expectation will not move prices much.
It’s a bit unusual for markets to be so insensitive to inflation data. Perhaps markets are writing off the hotter data due to the US/Iran conflict. This implies quite a deflationary pulse once the US/Iran agreement is done and trade through the Strait of Hormuz resumes.
Is that a tall order or a reasonable expectation? I think it’s reasonable but the peace process isn’t proceeding much, if at all. We’ve asked this question a few times previously, when will the market run out of patience for peace?
It seems like the answer is always a few weeks. Then time passes and the question is re-asked and re-answered with a few weeks. The situation is as remarkable as it is confusing.
Bears must be wondering what it will take to crack the tape. Perhaps the fact that the equity market has resisted so many of these negative developments tells us something. Perhaps it tells us just how strong the bullish trend is. Nobody wants to lift offers in size at the top but if this market is refusing to go down significantly, it’s likely to go up significantly with a little help from the headlines.
Until we get that help, maybe we trade like we did today, down slightly, maybe a bit of sideways chop for a bunch of sessions. If stocks are catching their breath at the moment, when they decide it’s time to resume the trend, recent buyers will likely be pleased.
See you tomorrow.
-Mike
Visdom Market Commentary
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