Wednesday's Market Minute: Waiting For The Next Shoe To Drop

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It’s been 12 days without any new lows in the Nasdaq-100 index. The S&P 500 is the highest in a month; 6.5% off the lows and 13% off the highs. Bitcoin is at the upper end of an unusually stringent range centered around 30,000. By 2022 standards, it’s a step in the right direction.

Even though these victories may seem minor in the context of the destruction that’s been wrought across a wide array of popular companies the past year, there’s an unmistakable change in the tone of day-to-day trading the past three weeks. The VIX may show it most clearly, ending Tuesday’s session at the lowest level since April 22. Given the S&P is only the highest since May 5, this gives us some unique information that speaks to the newness of the trading calm that’s taking root despite the intensity of the macro debate over inflation. 

The latter chunk of tech earnings did a lot better than the first batch, and negative stories like the one on Target’s inventory problems on Tuesday are being digested with more grace than they would’ve been just weeks ago. Dips on indexes are being bought intraday, and it’s starting to rejuvenate hopes that growth tech stocks may one day spread their wings and soar once more. 

Bullish traders should be careful not to fly too close to the sun.

Coincident with stocks gathering momentum is the unstoppable climb in commodity prices, a major culprit behind inflation and therefore the Federal Reserve’s tightening path. The fresh yearly high in the GSG commodity ETF is an odd pairing with the relative strength in equities. With inflationary forces still pressing, the Fed is more likely to speed up than slow down, and so the bear case remains more compelling.

But the recent price action has to be respected, and bears should be nimble until the next shoe drops. CPI comes out Friday and is expected to remain high. This will be an important gauge to see if bond sellers have the gumption to push the 10-year to a new high. If that doesn’t happen, bulls may have the clear until Fed speakers start preparing us for rate hikes in the late summer and fall – when that happens, the market will be back under pressure.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.