Friends
When we last spoke on Friday, I asked and answered yes to the question are we do for a pullback? Yes, I acknowledged that conditions are/were good for stocks, but the move higher that we have seen put the markets in a rather tenuous situation. Today we got an inflation report that was a little hotter than expected and all hell broke loose in those markets. Instead of a trailing 2.9% inflation rate we got a CPI number today showing a rate of 3.1%. That may not sound like that big a deal/miss, but remember stocks were priced for a Fed that was going to be lowering rates soon and often. That ship continues to sail away. The Fed’s next move in interest rates is still likely down, but when that policy move will begin is very much in question. March seems surely out of the question now and likely May too. So, in a phrase, stocks were priced for perfection or at least perfect conditions which include a strong economy, rising profits, and lowering inflation. It’s not clear whether those conditions have changed all that much in a day, but for now the bears have an opening, and one that wasn’t expected – a too hot economy that actually pushes inflation higher.
As for today, stocks tumbled from the opening bell with the Dow Jones Industrial Average down 524 points to close at 38,272. The S&P 500 was down 68 points to close at 4,953. The Nasdaq Composite Index was down 286 points to close at 15,655. Gold was down $27 to trade at $2,005 per ounce, while oil was up $.82 to trade at $77.74 per barrel WTI.
A day like today should not surprise any of us. We knew a move like this was waiting for us out there somewhere. We just didn’t know what would be the match that lit the flame. Today’s match was the hotter than expected CPI number. If markets had not been doing much in recent months, I doubt a number like today’s CPI report would be that big a deal. But when stocks spend months basically moving straight up, they become susceptible to any piece of data that disrupts the narrative. The narrative got disrupted today.
Have a nice evening everyone.
