Does inflation matter to stocks anymore?

Mid-week market update: The S&P 500 roared out of the gate this morning on a slightly softer than expected CPI print. Robin Brooks observed that super-core CPI (core services  ex-housing and healthcare, light blue bars) have been decelerating.



Unfortunately for equity bulls, the gains faded over the course of the day.


Callie Cox pointed out that stock market volatility has been falling on CPI days when compared to FOMC and NFP days.



Does inflation matter to stocks anymore?



Differing technical patterns

What would prefer to hold in the current environment? The 7-10 year Treasury ETF (IEF), which is their upside breakout?



Or would you prefer the S&P 500, which unsuccessfully test a overhead resistance level while exhibiting a negative RSI divergence and overbought on the % of stocks above their 20 dma?


A review of market breadth, as measured by capitalization bands, tells a story of narrow leadership by the large-cap S&P 500. While the S&P 500 is range-bound, market strength deteriorates as you go down market capitalization groupings, starting with the equal-weighted S&P 500, which reduces the dominance of the megacaps, to the mid-cap S&P 400, and finally the small=cap Russell 2000.



A review of the relative returns of the top five sectors of the S&P 500, which comprise over 70% of index weight, shows few signs of sustained leadership. Technology relative strength is rolling over. The defensively oriented healthcare sector is starting to turn up. Financial and industrial stocks may be trying to bottom, and consumer discretionary is flat against the index.



None of this means that it’s time to be outright bearish, but disappointing performance in the face of good news is a cautionary flag. I reiterate my belief that the stock market is in a choppy range-bound pattern. Investors should wait for either a bullish or bearish catalyst before taking a directional view on stock prices.


1 thought on “Does inflation matter to stocks anymore?

  1. The candle on the ES mini has a long upper tail, it just looked like flushing out stops at the high that was set on April 4. It did not stay above 4160 for more than 10 minutes, so the action looks bearish for now. The next congestion on the downside is around 4060 or so. The top of the Dec13 candle is near 4200 and the lows since then have been around 3800.
    We could be in a triangle, or not. If we break to the upside can we really get to 4600? To the downside 3400 seems more *reasonable*, but if we are rangebound, between 4200 and 3800, and the rally to 4177 was rejected, there seems to be much more downside (over 300 on the ES mini) than upside (less than 100).
    David Rosenberg sent a freebie about how bank lending is down. How can this be good?
    Isn’t it more likely that we go down into year end and Washington gooses things in prep for the elections? One thing all the pols agree on is they all want to win, so Scrooge will leave town in 2024

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