Bulls vs. rope bear

We've had two really big developments since last week - two hotter than expected inflation reports...and the reaction of the S&P 500 (SPY) says a lot about where we are right now in terms of the game bullish/bearish tug of war in progress. Keep reading to find out what it says….

(Please enjoy this updated version of my weekly commentary originally published February 16, 2023 in the POWR Stocks Under $10 newsletter).

Market Commentary

On Tuesday, we received the latest monthly Consumer Price Index (CPI) report from the Bureau of Labor Statistics.

The report shows that prices rose 0.5% month-over-month and 6.4% over the past year. Both numbers were higher than most economists expected.

After investors spent 2022 panic buying and selling on inflation-linked data, it looked certain we would have a sell-off…both days, but Tuesday ended in stagnation (with the Nasdaq index actually up), and all three major indices have almost fully recovered their losses from this morning.

Then this morning we received the January Producer Price Index (PPI) report. Again, the PPI showed prices rising (at a rate of 0.7% month-over-month), which was faster than the 0.4% rate predicted by economists.

It looked like we were in for a repeat of Tuesday, with stocks falling on the news and then recouping their losses before the close.

And then, in the last hour of trading, the market fell again. In the end, the S&P 500 (SPY) closed down 1.4%. The Nasdaq closed down 1.8%.

So what's the problem?

It looked like Tuesday's results were already priced in somewhat. In fact, on Tuesday I wrote…

We all know at this point that inflation is not just going to drop in a straight line over the next few months, but inflation is still down significantly from its peak. Investors seem to get the idea that the Fed is unlikely to cut interest rates in 2023, something Fed Chairman Jerome Powell has been saying for months.

Even so, investors did not sell all their holdings in a panic.

In other words, the bulls are winning this arm wrestling round, and investors are "taking the risk", buying stocks that were previously deemed "too volatile" and " bad investments for a high price". pricing environment."

But things were a little different today…and that's because we had the addition of two Fed officials saying they had considered the possibility of 50 basis point hikes. That, plus a second hot inflation reading, seemed to cool all buying.

Now, even with the end of day sell off, the S&P 500 is still hovering around 4,100, which is our important support/resistance level.

The ability of the index to stay above this level could potentially mean that the bullish rally is still in progress. If it falls below, we could see a significant drop lower.

Because the market reversed so suddenly at the end of the day, it's hard to know what market sentiment will be going forward. I can't wait to see what tomorrow has in store for us.

Conclusion

This could be a tough round for the bulls to win, but if they do, it could be the start of a stronger leg.

And if the bears prevail, we always protect ourselves with sell trade triggers and taking our gains while they are still quite profitable.

What to do next?

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All the best!

Meredith MargraveChief Growth Strategist, StockNewsEditor, POWR Stocks Under $10 Newsletter

SPY shares closed at $407.26 on Friday, down -$1.02 (-0....