Broker Check

Stocks dropped last week on hot inflation data

March 18, 2024

Stocks dropped last week on hot inflation data (CPI and S & P 500 was at 4,800, a slowdown wouldn’t be so worrisome. It’s at 5,100, and if data begins to roll over, a 10% pullback can happen very quickly and even then, it’s tough to say we’re at levels of solid support. Point being, we do not need rising recession risks to cause a real pullback. Just legitimate growth concerns could do it given valuations, and the data this week did make that more likely (it’s not probable, but it’s more likely) and that’s why stocks dropped.

Bottom line, focus on growth. Growth is the rally killer we need to watch for. High inflation and higher yields aren’t, by themselves, rally killers. It’s that both make a slowing more possible and that’s the problem we need to watch for. From a strategic standpoint, the underlying fundamentals of the market remain positive so I do not think that reducing exposure materially for anything other than very short-term accounts is warranted. For that to happen, we’d need to see two or more of the bullish mantras invalidated (solid growth, falling inflation, impending Fed rate cuts, AI enthusiasm).


But because of this growth disconnect, a decline on soft data should not be surprising to anyone, even one as much as 5% or potentially more (especially if the Fed dots show less than three rate cuts). However, as long as the bullish mantra remains intact, that’s a buying opportunity.


Bottom line, last week’s data was not positive as it showed buoyant inflation and mixed growth and it absolutely contributed to the uptick in volatility. However, it’s not bad enough to cause a broader pullback in stocks. But make no mistake, the recent data is pointing towards sticky inflation and a potential loss of momentum and if that continues, it’s only a matter of time until it does cause a pullback in stocks, so we need to continue to watch data closely in the coming weeks.


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