Core Inflation Concerns Grip the Fed and Investors, but will Investor Buy the Discount?
Following the release of January’s inflation rate and core inflation data, both the USA100 and all US indices experienced rapid declines. Within the NASDAQ, only 6% of its components managed to retain their value, with all stocks holding more than a 0.50% weight in the index depreciating. The decline was not triggered by an inflation rate deemed “too high” or by dashed hopes of interest rate cuts; rather, it stemmed from investors’ newfound skepticism regarding the feasibility of a rate cut in March.
Analysts argue that while the inflation rate doesn’t pose an imminent threat to the US economy nor signal a sustained downturn in US stocks, it could weaken demand in the short term. They maintain that the inflation rate, while not alarmingly high, simply exceeded overly optimistic expectations, and anticipate rate cuts in the second quarter of 2024.
Investors also observed positive price movements in European and Asian stock markets this morning, signaling an improved global sentiment compared to the preceding two days. Furthermore, investors are exhibiting a renewed appetite for risk. Lastly, the 10 Year Bond Yield fell by 12 points during today’s initial two sessions, a factor known to support the US Stock Market, provided the yields remain low or continue declining.
Yesterday, investors’ primary apprehension revolved around core inflation data, which continues to pose challenges. Core inflation excludes food and energy-related products, and the monthly core inflation data, registering at 0.4%, marked the highest since May 2023. However, some relief came from falling inflation rates elsewhere, including the UK and China, as well as Swiss inflation. The Producer Price Index (PPI) now assumes critical importance for investors; a higher-than-expected reading could exacerbate concerns and potentially trigger a correction in the USA100 rather than a minor retracement.
The Short-term performance hinges significantly on forthcoming earnings reports from Cisco and Applied Materials, which collectively constitute 2.70% of the index. Better-than-expected earnings from these companies could assuage investor concerns, especially considering their consistent beatings of earnings per share expectations over the past year.
On the daily chart, a retracement would entail a further decline ranging between 1.89% to 4.40%, while a full correction would signify a 6.30%-8.00% drop. Currently, the two-hour chart hints at an upward price movement towards the 75-bar exponential moving average, contingent upon earnings data, US Retail Sales, and Friday’s PPI release.
ABOUT THE AUTHOR
See More
Sidebar rates
Add 3442
Related Posts
Save
Join 350 000+ traders receiving Free Trading Signals
Alerts
Rates
Calendar
Signals