Market indices closed near session highs today, largely letting the engines idle hotter as we await economic prints like June’s Consumer Price Index (CPI) numbers out tomorrow morning. This morning, we said the pre-market rally was running on fumes, but with the Dow +0.93%, the S&P 500 +0.67% and the Nasdaq +0.55%? It would seem something else is at work here.
The most notable thing we see from the charts over the past several sessions is that the small-cap Russell 2000 has really caught a bid. This would appear to be an expanding of a bull market, out of the mega-caps that have led the way over the past couple weeks, and into places like the Russell, which was up another +0.96% and now +2.5% for the week so far. There’s a sense of confidence market participants currently have in terms of riding the rally higher, even without any particular catalysts.
Then again, tomorrow’s CPI number is one of the most important economic metrics of the month, with expectations for a nice drop in headline CPI year over year (the “Inflation Rate”) and a stingier one in core CPI year over year. Any surprise to the downside would provide a case for the Fed to stop raising interest rates for the rest of this cycle. In fact, estimates are suitably low for these year-over-year numbers, so even coming in-line would be a boon for the market (which investors have begun to take advantage of already). But higher-than-expected figures tomorrow? Perhaps that would be met with a bit of coolness.
We’ll also get a new Beige Book from the Federal Reserve tomorrow afternoon at 2pm ET. Even though this sort of thing does not usually move markets the way CPI data might, it does tidy up the economic realities that we normally get in dribs and drabs throughout the course of the month elsewhere. Further, we’ll hear from Richmond Fed President Tom Barkin, Minneapolis President Neel Kashkari and Atlanta President Raphael Bostic at different addresses throughout the day tomorrow, ahead of the blackout period preceding the Fed’s next monetary policy decision two weeks from today and tomorrow.
The rally since early May we’ve seen overall are currently trading at one-year highs — save the Russell at this point. We’re still a ways from the all-time highs set in November 2021, but without the narrative from the Fed and subsequent economic news — to say nothing yet of Q2 earnings season — it’s tough to see us taking out those levels in the near-term. This goes for if the CPI numbers fall precipitously, as well; we’ve currently got a slowing but still constructive economy right now — the best of both worlds while the Fed continues to try to get inflation on the ropes.
Thus, we’ve been enjoying the ride, but are beginning to look for the exit — unless CPI numbers are so favorable to the bullish market near-term that they can somewhat justify loftier valuations going forward. At least as likely, however: the markets are currently getting a little ahead of themselves.
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Markets Stay Bullish Ahead of CPI Wednesday
Market indices closed near session highs today, largely letting the engines idle hotter as we await economic prints like June’s Consumer Price Index (CPI) numbers out tomorrow morning. This morning, we said the pre-market rally was running on fumes, but with the Dow +0.93%, the S&P 500 +0.67% and the Nasdaq +0.55%? It would seem something else is at work here.
The most notable thing we see from the charts over the past several sessions is that the small-cap Russell 2000 has really caught a bid. This would appear to be an expanding of a bull market, out of the mega-caps that have led the way over the past couple weeks, and into places like the Russell, which was up another +0.96% and now +2.5% for the week so far. There’s a sense of confidence market participants currently have in terms of riding the rally higher, even without any particular catalysts.
Then again, tomorrow’s CPI number is one of the most important economic metrics of the month, with expectations for a nice drop in headline CPI year over year (the “Inflation Rate”) and a stingier one in core CPI year over year. Any surprise to the downside would provide a case for the Fed to stop raising interest rates for the rest of this cycle. In fact, estimates are suitably low for these year-over-year numbers, so even coming in-line would be a boon for the market (which investors have begun to take advantage of already). But higher-than-expected figures tomorrow? Perhaps that would be met with a bit of coolness.
We’ll also get a new Beige Book from the Federal Reserve tomorrow afternoon at 2pm ET. Even though this sort of thing does not usually move markets the way CPI data might, it does tidy up the economic realities that we normally get in dribs and drabs throughout the course of the month elsewhere. Further, we’ll hear from Richmond Fed President Tom Barkin, Minneapolis President Neel Kashkari and Atlanta President Raphael Bostic at different addresses throughout the day tomorrow, ahead of the blackout period preceding the Fed’s next monetary policy decision two weeks from today and tomorrow.
The rally since early May we’ve seen overall are currently trading at one-year highs — save the Russell at this point. We’re still a ways from the all-time highs set in November 2021, but without the narrative from the Fed and subsequent economic news — to say nothing yet of Q2 earnings season — it’s tough to see us taking out those levels in the near-term. This goes for if the CPI numbers fall precipitously, as well; we’ve currently got a slowing but still constructive economy right now — the best of both worlds while the Fed continues to try to get inflation on the ropes.
Thus, we’ve been enjoying the ride, but are beginning to look for the exit — unless CPI numbers are so favorable to the bullish market near-term that they can somewhat justify loftier valuations going forward. At least as likely, however: the markets are currently getting a little ahead of themselves.
Questions or comments about this article and/or author? Click here>>