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.
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.