S&P 500 Faces Turbulence: Worst CPI Day in Years Signals Potential Downturn

📝 SUMMARY: The S&P 500 Index ($.INX) experienced a dramatic halt in its upward trajectory, marking its worst performance on a CPI announcement day since September 2022, with a 1.4% decline. This setback came after a robust 15-week rally, during which the index surged 22%, significantly distancing itself 13% above its 200-day moving average—a level of overvaluation seen on only 5% of trading days this century. This rally's momentum, fueled by speculative optimism on forthcoming interest rate cuts, was abruptly challenged by unexpected inflation data, suggesting a stickier economic environment than previously anticipated.

This recalibration in expectations led to a broad market selloff, with the Nasdaq 100 Index falling 1.6% and stocks with the highest short interest plunging 5.5%. The market's response was almost unanimous, with 91% of NYSE stocks trading lower, underscoring the widespread impact of the inflation data. Historical patterns suggest that such a significant gap from the 200-day moving average often precedes further losses, as evidenced in 2011, 2015, and 2018.

Investors now face a precarious market landscape, with potential support levels identified at the S&P 500’s 20-day and 50-day moving averages, and further down at this year’s intraday low. Despite the market's recent resilience, driven by strong corporate earnings and a stable consumer environment, the lack of hedging demand signals a worrying level of complacency among investors.

The market's next moves remain uncertain, with technical indicators and fundamental strengths pulling in opposing directions. This recent CPI-induced selloff serves as a critical reminder of the market's vulnerability to macroeconomic shifts, emphasizing the need for investor caution amidst seemingly relentless rallies.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-13/momentum-slams-into-a-wall-in-s-p-500-s-worst-cpi-day-in-years