• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Inflation’s Cooling, But Stock Market Isn’t Celebrating: What Gives?
Stock

Inflation’s Cooling, But Stock Market Isn’t Celebrating: What Gives?

by May 11, 2023
by May 11, 2023 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

When inflation is a huge concern, you’d think the stock market would celebrate in a big way when inflation shows signs of cooling. Not so much.

April consumer price index (CPI) and producer price index (PPI) data came close to estimates. Headline CPI rose 0.4% in April and 4.9% from a year ago. And core CPI, which excludes food and energy, was up 0.4% in April and up 5.5% year-over-year. Services inflation, a number the Fed has been watching closely, rose 0.3%, which is still high. April PPI numbers also showed a similar trend. Headline PPI was up 0.2% in April and up 2.3% from a year ago. And core PPI was up 0.2%, mostly due to the 0.8% decline in auto prices.

The Fed Can Chillax

Although some areas could see more cooling, the overall data shows that inflation continues to decline. And that could be good news for the Federal Reserve. After 10 interest rate raises, their efforts may be starting to impact the economy. The stock market may not be throwing a party, but maybe the Fed could have a more relaxed meeting in June—not a bad way to prepare for the summer months.

The stock market breathed a sigh of relief, or at least that was its initial reaction after the CPI news was released. But during the trading day and the following day, after the PPI was released, the market didn’t do much, except for growth stocks. And that could be because of the price action in the bond market.

Treasury yields dipped lower on the cooling inflation news, a scenario that tends to favor growth stocks. So it’s no surprise that investors flocked to stocks in the Technology and Communication Services sectors. Look at Alphabet, Inc. (GOOGL). The stock, after moving sideways for months, finally showed signs of breaking out above a trading range. A big catalyst behind the rise: Alphabet’s massive investment in AI at its annual I/O conference. Will it last? That remains to be seen.

Putting It All Together

A 4.9% headline inflation is still higher than the Fed’s 2% objective. But 4.9% is lower than the Fed Funds futures rate. This could mean that current interest rate levels may slow down the economy enough to get inflation closer to the Fed’s 2% target. This would be a best-case scenario. The labor market and shelter costs are still sticky points in the inflation data, but there seems to be enough data to support a pause in rate hikes.

Signs of a slowing economy, banking sector woes, Disney’s (DIS) weak earnings, and a decline in business loan demand suggest that things still need to be sorted out. So we’ll see how things unfold between now and June 13.

A stickier point is the looming debt ceiling, which could be playing its part in preventing the broader markets from busting through their critical resistance levels. The Nasdaq 100 index ($NDX) is probably the one index that’s shown strong performance because of the high representation of growth stocks—Meta (META), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), Microsoft (MSFT), and Netflix (NFLX). (See chart below.)

CHART 1: NASDAQ 100 INDEX COULD SEE A BULLISH RALLY. If the index continues higher and the percent price oscillator (PPO) rises and breaks above the downward-sloping dashed line, it could add momentum to the index.Chart source: StockCharts.com (click on chart for live version). For illustrative purposes only.

A couple of points to keep in mind when viewing the chart are as follows:

$NDX has crossed above its 13175 (green dashed horizontal line). If the upward trend continues, $NDX could rise to its August 2022 high of about 13721 (pink dashed horizontal line).If you look at the dashed blue lines in the price chart, you’ll see that $NDX has crossed above the top trendline. It has to stay above that trendline for the uptrend to continue. A breach below it could be trouble.Another indicator to watch is the percentage price oscillator (PPO) in the lower panel. There’s a divergence between price action and the PPO, which could be a bearish signal going forward. But if the shorter moving average crosses above the longer moving average and both lines move above the downtrending blue dashed line, it could be positive for $NDX. If the index trends higher in conjunction with the PPO, there could be a strong bullish path up ahead, at least up until the next resistance level.

The Bottom Line 

Even though growth stocks are performing better than other asset groups at the moment, we’re not out of the woods yet. If you’re trading heavily-weighted Nasdaq 100 stocks, you want to monitor some macro events, such as the debt ceiling and the banking crisis. These events, or something else you least expect, can change market direction on a dime.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

You Might Also Like
  • Three Ways Top Investors Track Sector Rotation
  • What’s the BEST Market Visualization Tool?
  • What Would a Top in Semiconductors Mean for the S&P 500?
  • How to Analyze Volume Trends on Multiple Time Frames
Share
0
FacebookTwitterPinterestWhatsapp

previous post
Trade Pullbacks — 3 Things to Know
next post
Currencies, Metals and Soft Commodities

You may also like

Disney Stock: A “Small World” Worth Buying?

February 9, 2023

CrowdStrike Shows Strength and Leadership with Breakout

August 1, 2023

Rocket Launches Fire Across Tech Space

May 26, 2023

Head and Shoulders Top for Semiconductors?

August 14, 2024

Industrials Ignite as Bitcoin Blasts Off

July 11, 2023

AMD Stock Projection: Price Could Soar Over 50%

October 10, 2023

DP Trading Room: Two Bullish Industry Groups

August 22, 2023

Sizable Selloff: Fed Minutes Crushes Stock Market, Yields Rise

August 16, 2023

Timeless Lessons from the Godfather of Technical Analysis

September 14, 2023

Stocks and Bonds SOAR After October CPI

November 14, 2023

Disney Stock: A “Small World” Worth Buying?

February 9, 2023

CrowdStrike Shows Strength and Leadership with Breakout

August 1, 2023

Rocket Launches Fire Across Tech Space

May 26, 2023

Head and Shoulders Top for Semiconductors?

August 14, 2024

Industrials Ignite as Bitcoin Blasts Off

July 11, 2023

AMD Stock Projection: Price Could Soar Over 50%

October 10, 2023

DP Trading Room: Two Bullish Industry Groups

August 22, 2023

Sizable Selloff: Fed Minutes Crushes Stock Market, Yields Rise

August 16, 2023

Timeless Lessons from the Godfather of Technical Analysis

September 14, 2023

Stocks and Bonds SOAR After October CPI

November 14, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Where the Market Goes Next: Key Resistance Levels + Top Bullish Stocks to Watch Now

      May 10, 2025
    • Recession Ahead? Sector Rotation Model Warns of Rising Risk

      May 10, 2025
    • Investment Portfolio Feeling Stagnant? Transform Your Path Today

      May 9, 2025
    • Confused by the Market? Let the Traffic Light Indicator Guide You

      May 9, 2025
    • Which Will Hit First: SPX 6100 or SPX 5100?

      May 9, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,633 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,322 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,303 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,536)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Where the Market Goes Next: Key Resistance Levels + Top...

      May 10, 2025
    • Recession Ahead? Sector Rotation Model Warns of Rising Risk

      May 10, 2025
    • Investment Portfolio Feeling Stagnant? Transform Your Path Today

      May 9, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,536)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Start Trading Like a Pro with...

    November 2, 2023

    Patience Required As A Handle Forms

    April 9, 2023

    Will the Generals follow the Troops?

    March 24, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here