CPI isn‘t yet to come in on the very hot side but it‘s the market reaction that counts

S&P 500 refused to rally over 5,270, and the sectoral overview of rising XLF and XLRE (reflecting rise in Treasuries) and XLU at expense of XLE, hint at much caution before CPI. Let‘s recall what I wrote Sat, and then develop it further based on the price action so far.

(…) Wednesday‘s CPI isn‘t yet to come in on the very hot side (over 0.4% headline and core), but it‘s the market reaction that counts – and yields are again on the move themselves, and it‘s to the upside. Oil and gasoline aren‘t declining, oil stocks aren‘t declining – and that means inflation is going up (I‘ve been saying since late 2023 that sticky inflation will come back to the vocabulary within a few short quarters, and that by year end we‘re going to be looking at 4% if not 4.4% CPI), and also consumer is going to be more squeezed (rising credit card debt isn‘t an issue affecting retail sales still as the economy remains resilient) and corporate earnings likewise, hence valuations (P/E) would also be pressured in 2H 2024.

That‘s certainly the fear, hotter inflation – the other part is risk aversion and going into Treasuries and interest-rate sensitive areas such as IWM, KRE and XLRE. That probably also concerns precious metals fine showing yesterday – all called and how it goes with oil longs, chiefly via your premium gold & oil Telegram.

The fear of already (getting, being) stubborn inflation is justified, and I don‘t think that either oil and gasoline prices (ultimately reflected in goods and services) would be helped much by shelter or car prices, and hence that disinflation would be interpreted as overrated, especially after Thursday‘s PPI.

Let‘s move right into the charts – today‘s full scale article contains 3 more of them, with commentaries.

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S&P 500 and Nasdaq

Already weak S&P 500 chart is flirting with going at least to the 50-day moving average, but for the immediate future, break below Thursday‘s lows is out of the question before CPI, and the preceding uncertainty would then have to be dispelled in disinflation compliant way. Already Saturday, I hinted at „upcoming CPI not to come in totally pleasantly low“.