The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Bearish mix
Futures were slightly positive overnight. Crude started climbing before 8 AM and futures started dropping shortly thereafter. The ECB hiked their rates 25 bips at 8:15 AM, as expected. Yields started climbing and then we saw PPI (+5.4% vs +5.3% est & +4.8% prior revised from +4.7%). Stock futures fell and bond yields climbed further. The probability of a 25 bip hike on the 16th climbed above 70%. The S&P opened down about 45 points and spent the day between down 56 and 24 points. WTI climbed throughout the session, climbing well over $100 per barrel in the afternoon. Yields climbed substantially across the curve by the end of the session. Capital flow was surprisingly light at 85%.
We wait on pins and needles for the CPI (+3.4% est vs +3.4% prior) tomorrow. However the verdict is essentially in. The Fed will likely hike on Wednesday and who knows how many more hikes are possible thereafter. The Fed won’t give guidance so markets will play the guessing game for a while. There are currently more than *three* hikes priced from now through June ’27 according to the Fed Funds futures market. That’s a hiking cycle folks. And *that* narrative still hasn’t hit the stock market.
Now we can address the crude market. It is still climbing, and substantially. WTI is up 8 consecutive sessions, about $20 per barrel in total. This runup in oil price is significant enough that we not only need to worry about inflation implications but also demand destruction. The stock market is paying close attention and without a substantial *drop* in oil prices, it is going to be very tough for stocks to trend higher.
Yields and oil are two powerful and fundamentally bearish forces altering the investing landscape for stocks right now. Notice that neither is likely to turn in the short run. These two factors are slow-moving and already have substantial momentum in the wrong direction, as far as stock market bulls should be concerned.
If we look at the chart of the S&P, bulls don’t get much help there either.
The S&P just broke below the 50-day moving average (7604). The index is down four consecutive sessions and what looked like consolidation a couple days ago, now looks like a short-term down trend. The next technical level of interest is the 100-day moving average (7491). That’s about 100 points away. Not too far but still a painful drop further.
The long-term trend for the chart is still clearly upward. The bulls have that going for them but they’ll need the dip-buyers to be heroes soon. Is that likely?
Today’s inflation data and oil price surge was a significant one-two punch for stocks. The fact that the S&P only fell about half a percent is a positive. However, I don’t like the lay of the land for the near term. Advantage bears, for a while, again.
See you tomorrow.
-Mike
Visdom Market Commentary
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