Key Points:
- The stock market experiences a one-day decline following hotter-than-expected CPI data.
- A Swift rebound was seen over the next two days, with the S&P 500 reaching record highs.
- Analysts emphasize focusing on the overall economic outlook rather than specific rate-cut numbers.
- Technical indicators suggest the market remains uptrend, but downside risks persist.
The U.S. stock market experienced a sharp decline following the release of the January consumer-price index, which came in hotter than expected, prompting concerns about the Federal Reserve’s rate cut plans. However, the market swiftly rebounded over the next two days, with the S&P 500 reaching its 11th record close of 2024 by Thursday.
Fears of a delay in rate cuts fueled the initial decline. Still, analysts like Tim Hayes from Ned Davis Research reassured investors that doubts about the timing of bullish events should be distinguished from fears of bearish outcomes like resurgent inflation or economic collapse.
Tuesday’s drop saw the Dow plummet over 500 points, its worst performance since March of the previous year, while the S&P 500 and Nasdaq Composite also experienced significant losses. However, stocks bounced back over the following days, partly due to a weaker-than-expected January retail sales report that alleviated concerns about inflation.
Friday saw another setback after a hotter-than-expected inflation reading from the January producer-price index. Consequently, the Dow ended the week down 0.1%, and the S&P 500 shed 0.4%, halting a streak of five consecutive weekly gains.
The rebound in stocks and the decline in the Cboe Volatility Index (VIX), also known as Wall Street’s “fear gauge,” suggest that the recent market movements were not solely driven by rising fear. However, there are concerns about resurgent bets on declining volatility through the options market, which could lead to further market disruptions.
Despite frustrations among traders seeking a sustained pullback, technical analysts like Mark Arbeter noted that major indexes remain uptrends, with key support levels providing a buffer against further downside. While the market may be due for more downside technically, a drop below certain support levels could pave the way for further declines.
