Stocks edged higher today following a choppy trading session that had the market flat for most of the afternoon. The Dow, S&P, and Nasdaq Composite all gained modestly. Tech shares enjoyed the largest gains of the day as panic-buying lifted the indexes out of the red in the final fifteen minutes of trading.
Despite the late rally, stocks remain down significantly over the last two trading session thanks to yesterday’s hot August Consumer Price Index (CPI) release.
“Tuesday’s selloff is a reminder that a sustained rally is likely to require clear evidence that inflation is on a downward trend. With macroeconomic and policy uncertainty elevated, we expect markets to remain volatile in the months ahead,” said Mark Haefele, CIO of UBS Global Wealth Management.
In fact, yesterday’s drop was the market’s worst single day loss since June 2020. Most traders expected a rebound today.
Overall, though, it wasn’t much of one. The S&P remains near key support at 3,900, and another bad trading session could easily see the index break through that price level.
“This CPI report put cold water on a building market narrative that a potential easing in inflation data could provide the Federal Reserve (Fed) cover to ease up on its aggressive tightening campaign,” noted Truist chief market strategist Keith Lerner.
“This report will keep the Fed squarely focused on enemy number one – inflation. Indeed, earlier this year, Fed Chair Powell said the current backdrop is ‘not a time for tremendously nuanced readings of inflation,’ and the Fed will keep tightening policy until inflation comes down in ‘a convincing way.'”
Investors have priced in a 24% chance that the Fed will hike rates by 100 basis points when the September FOMC meeting concludes on the 21st.
A 75 basis point hike is still viewed as the most likely outcome (76% chance), but in the wake of August’s inflation data, 100 basis points is certainly on the table.
Leading up to the FOMC meeting, the market’s short-term trend is likely to be decided over the next handful of trading sessions.
Snap Inc. (NASDAQ: SNAP), meanwhile, is already approaching a bearish reversal. The stock closed below its 10-day moving average today, establishing a double top – a bearish reversal formation – just one day after closing below its 50-day moving average.
SNAP also closed below its minor bullish trend (yellow trendline) as well. The stochastic indicator also suggests that SNAP has room to fall.
For those reasons, it might make sense to take SNAP short with a trade trigger of $11.15, below today’s low, as the market attempts to stabilize following yesterday’s major drop.
