Crash, Correction Or Rotation
Equities surged immediately after the low CPI print, but it were only interest rate sensitive sectors that maintained and extended gains. Niether S&P 500 nor Nasdaq (Mag 7, Big Tech) did – with Sep rate cut now guaranteed (fear not deflation) there is rush into Russell 2000 and other sectors talked in the premium section.
One would have expected equities to tank on a hot CPI – not one that would allow the Fed to cut not just in Sep, but potentially if more upcoming data hint at job market weakness or rather consumer weakness (retail sales, consumer confidence) – especially since these spiked in the immediate reaction to the data.
If there was genuine fear of deflation based on that sole mom figure, USD would have risen. As USD rises, yields differential vs. other key currencies does so too. That didn‘t happen.
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