Stocks Bent but Didn’t Break on Bad CPI News. Here’s What to Watch For.

Update on Existing Trades Plus a New Conditional Trade

The stock market did a swan dive on 2/14/24 after a worse than expected CPI number.  Bond yields moved decidedly higher in response, setting a negative tone for the day as inflation fears were rekindled and the odds of a March, and likely a May rate cut from the Fed fizzled.

By 2/14/24, however, the S&P 500 (SPX) had bounced back above its 20-day moving average and the market’s breadth, as measured by the New York Stock Exchange Advance Decline line (NYAD) had confirmed the welcome recovery.  SPX, has not crossed back above 5000 as of press time.

Certainly, this recovery in the stock and bond market may be temporary as more data, Retail Sales, Jobless Claims, and PPI are due out on Thursday and Friday this week.  Another negative surprise from PPI or any other number could well undo the fledgling bounce in stocks and push bond yields higher.

The U.S. Ten Year Note yield (TNX) broke above the 4.15% area, and settled above 4.25% on the CPI news. TNX moved lower on 2/14/24 but this move is still active, especially when there is more data due out over the next couple of days, as I noted above.  All three of these data points could move bond yields higher.

The Numbers to Watch

When it comes to bonds, keep an eye on the U.S. Ten Year Note yield (TNX) 4.25-4.3%% area, as a big move above that yield range will likely translate into heavy selling in stocks.

In the stock market, keep a close eye on the S&P 500’s 20-day moving average, roughly the 4920 area. That’s where the post CPI selling found support.