February Consumer Price Index data hit the wires this morning with some good news.
Inflation for the month of February came in “cooler” than expected at 0.2% versus analyst expectations of 0.3%. On an annual basis, inflation sits at 2.9% which was also lower than expected.
Pricing hot spots remain the same with inflation readings on food and shelter remaining relatively high. On Tuesday, the Realtor’s association published a report detailing that the current housing shortage will take up to seven years to correct as inventory and demand remain high.
Egg prices - that number that everyone is watching - are up 58.8% over the last year. Also notable n the report was the increase in dining out as restaurants are charging higher prices to cover their increased food costs.
All of this, of course, could change over the next three months as tariffs are set to increase costs for everything from groceries to steel.
Bottom line: Investors are jumping back into stocks this morning with wild enthusiasm. NVIDIA and Palantir are both leading the Nasdaq 100 and large cap tech as investors rush out to catch the falling knife.
Don’t lose a finger here trying to catch that knife. be patient, the data and trends suggest that you’re going to see another chance to buy these companies at last night’s close again.
Goldman Sachs economists were the first on Wall Street to react to the recent selloff with a lowering of their expectations for the S&P 500 in 2025.
On Wednesday, Goldman’s moved their S&P 500 earnings-per-share estimate for 2025 slightly lower, to $262 from $268. That compares to the $270 Wall Street consensus.
The downgrade came as a reaction to Goldman's economists earlier this week lowering their GDP view on expectations of a 10-percentage-point tariff rate increase.
Bottom Line: These estimates and targets are often for bragging rights for the firm that is “closest to the pin” at the end of the year but they do represent a shift in market sentiment that will change hos investors are investing.
More importantly, this is confirmation of what we already know, the new tariffs are going to cost your portfolio in the form of lower returns.
Stocks look good here….
This is a good time for investors to buy…
CNBC’s Jim Cramer Spent the morning advocating that you should be buying the massive dip that stocks have seen over the last month. Let’s put this into perspective…
The Nasdaq 100 closed 12% lower than its February closing highs of $540. That 12% represents a “healthy correction” by most investors standard, but that may not be enough to consider buying stocks today or this week.
Cramer’s argument to buy stocks included his thoughts that the IPO market is likely to see an increase in activity in 2025 and that we should expect to see an increase in M&A activity.
Believe me, neither of those potential catalyst have an effect on whether yesterday’s lows were as far as the market goes.
I’m going to dive into what the indicators are saying about this market in a moment, but I’ll tell you now that this market can’t be trusted. Investors are only at the beginning of their fear cycle, which means you need to be suspect and cautious.
Bottom Line: I consider Jim Cramer an entertainer that invests, not an analyst. Let’s stick to what the data tells us regarding when its time to buy stocks.
As I do from time to time, I’ll give you my bottom line first….
“I’m not agreeing completely with Jim Cramer, but the indicators I just reviewed show that the odds of a bounce in stocks is nearing 65-75% odds…
Investors that are buying stocks today should not be surprised a week or two from now when the rally amounts to nothing more than the first “Dead Cat bounce” of the market’s larger picture selloff…
We’ll talk more about defensive positioning on Friday with a breakdown of two simple hedging strategies that any investors can use to protect their portfolios.”
That’s for anyone that’s in a rush, let’s jump into the details for those of you that want the full story.
Yesterday’s selloff started with a strong morning. The Nasdaq and other indices traded more than 1% higher, but you had that sneaking suspicion that there was something else out there. Then it hit.
Canada’s Doug Ford stepped up to the mic and announced a 25% tariff on power exports to the U.S. from Ontario. Ontario’s premier added that there were circumstances that could see Ontario cut power to its U.S. consumers – more than 1 million households and businesses – as the tariff wars continue to heat up.
The heated exchange led to Donald Trump halting the doubling of tariffs on Canadian metals after Ford backed off his tariff threats, but the exchange is a sign of what investors can continue to expect over the next 45 days as the on again off again tariff situation continues.
Then, you and I will start to see the results of the tariffs trickle through to our bottom line and their effect on the economy. A fundamental hit to stocks versus the hit that the market is taking because of a simple shift in sentiment.
This is where I would normally give you the current reading of the CNN Fear and Greed index, but as useful as the index is for everyday investing, it won’t work effectively in the current market conditions.
Sentiment is going through a tectonic shift. What we’re seeing right now are the tremors for the earthquake that is building in the landscape of the market.
The last three weeks have hurt, but a 12% decline in stocks is usually just the beginning when you have as many fundamental challenges as the current market. No, this is a longer-term shift in sentiment that will follow the trend that I’ve pictured below.
Just weeks ago, the market was at that euphoric top of the sentiment cycle. This morning’s comments from Jim Cramer represent the fact that the market is not at the bottom, “Despair”.
No, if that were the case, we would have seen Mr. Cramer dropping his head on the desk telling you that you need to take any opportunity that stocks give you with higher prices to get out. Instead, we’re back to a buy the dip mindset.
This “Sentiment Cycle” above is the same pattern that the market followed during the bear market of 2022, the bear market of 2008, the bear market of 2000, and every other bear market this market has seen for one reason… sentiment and the psychology of investing never changes.
According to this, we’re in the early stages of a market correction that will stretch months, not weeks.
If you’re reading this you’re probably already watching the VIX.
Yesterday, the VIX jumped above the 27.50 level that I identified just over a week ago as the point where the market would find some support. That’s what you’re seeing today, but don’t count on it to hold.
Readings of the VIX adapt to the rising fear in the market meaning that there will be a series of spikes over the next 3-6 months. Each of those spikes will be higher than the previous until we see a reading of the VIX that analysts like myself will comment “that’s as far as it should go” or “I didn’t think the VIX could go that high”.
That will be the time to buy as it will correspond with the Sentiment Cycle hitting the “Despair” phase that is literally the best time to buy stocks. And yes, Jim Cramer will have his head on his desk in disgust.
On a side note, in all my appearances on CNBC I never met Cramer, I think he would be a great person to hang out with to talk markets but I see the same thing you see in his market calls.
Bottom Line: Tuesday’s spike in the VIX will spark some short-term traders to buy stocks and ETFs. These are the same traders that are looking to scalp 5% from a short-term trade which means they’ll turn to sellers again in a short time.
We’re going to look at the Nasdaq 100 (QQQ) since that is the best representation of what investors are buying these days.
Last week, the Nasdaq 100 sliced through its 200-day moving average. That trendline is the second technical defense for a stock or index.
The first defense, the QQQ’s 50-day moving average, was breached in late February and is now in a bearish pattern itself.
These two technical marks against the QQQ are significant and will take time to reverse, but there is a sign that investors should expect a short-term bottom soon.
Momentum, as measured by the percent of companies in the Nasdaq 100 above their 50-day moving average, is reaching an inflection point.
As of today, only 25% of the Nasdaq 100 companies are trading above their 50-day, this is an extremely low reading that usually signals that a short-term bottom is forming.
In January, this indicator hit 20% as the QQQ found a short-term bottom. April 2024 the same.
This suggests that stocks may be close to a SHORT-TERM bottom.
I’m not agreeing completely with Jim Cramer, but the odd of a bounce in stocks is nearing 65-75% odds.
The combination of the extremely low momentum readings and Tuesday’s VIX spike set the stage for a short-term rally that will see the Nasdaq 100 move 3-4% higher to its 200-day moving average. That’s where the rally stops.
Investors that are buying stocks today should not be surprised a week or two from now when the rally amounts to nothing more than the first “Dead Cat bounce” of the market’s larger picture selloff.
Use the opportunity to sell profitable positions into the strength while you can and to also position your portfolio for the next 10-15% drop that should follow relatively soon.
We’ll talk more about defensive positioning on Friday with a breakdown of two simple hedging strategies that any investors can use to protect their portfolios.
