Hot CPI - or was it? I dissected some components that were not so hot. We were at a pivot point for S&P, and now we'll see if PPI and later PCE are friendlier.

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The real risk now:

Iran. Last week Iran & Russia talked of a mutual defense pact. Is it for real or not?

Today's 10-year Auction was horrid, and should not recur or there's trouble. I don't have an issue with the S&P pattern, as it followed my 'technical outline' for orthodox patterns surrounding an 'ouside-down key reversal' session last week, hence the call for washout, rebound, then lower at a pivot point. Clearly the perceived hotter CPI (it was warmer by 'insurance' and oil were the key areas of high prices) allowed the big-cap pivot to the downside, which was the normal expectation, other than had they massaged the data.

Incredibly it looks like the data was straight-forward and not manipulated just for politics, but this can be a ping-pong scenario for a few weeks as a result. I still see this as a sort of 'stagflation' for society, with sufficient growth in bigger cap areas that you have the S&P holding a high range, mostly by back-filling by other than where the money managers ran to today. They will seek value, and they don't have much of that in the mega-cap tech leaders, just high price levels.

There are arguments for 'dis-inflating' that some see, I see fewer of those. July might now be the best case for a 'first' rate cut, but again might not be central to the S&P, as it's more pertinent to smaller-cap stocks and small business in general. Also, 'relative' to where we were there's an argument Fed monetary policy 'is' actually restrictive.

Value under-performing big-cap growth is what you'd expect without a softer CPI, and that's why money managers ran right back to mega-caps like NVDA after the initial washout response to the slightly hotter CPI. To me it wasn't a surprise, just thought that OIL mattered, and that the rest was noise basically, whether viewed in terms of other products, fuel and shipment, or even the war (which is still on the back burner today, but verbiage is turning hotter again).

Materially, not much has changed with regard to an investment outlook, with a single exception that matters. That's the 'broadening-out' of the market, which would do better with lower inflation expectations, however special situations of course depend on technologies or applications being sufficiently disruptive to make a dent in their sectors and generate at least the promise of new growth.

I do realize everyone is debating the 'risk of a Fed mistake', which the Fed I'm thinking is well aware of how long they stayed too low, and then scurried far too aggressively to move rates back up, after consumers and business got so used to low rates. I suspected that would happen, supported a 'softish landing idea' (still do), and continue to believe there's a crowded trade in big-cap tech stocks, which can't all realize the lofty dreams of their newly-wealthy CEO's.

So I think the market may be overreacting in a way, because 'it' never soared like the mega-caps. The prices-paid sub-index of the ISM was lower (ah ha), with hotter numbers being in INSURANCE for Autos and of course Housing. It is one of the hottest areas consumers can't do much about, and isn't directly tied to Oil prices (hence I mentioned this before, and that was today's kicker). This leaves open whether PCE surprises and turns this around. We'll see.

The single simplest influence that measures expectations is Oil prices, hence I have tried to cut-to-the-chase about all this by emphasizing just watch Oil.

Bottom-line: 

The reflexive process continues.

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