Panicky peddling pummeling prices provided plenty of pressure persistently in Tuesday's session, with barely a brief reprieve at mid-session.

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As noted prior to this chaos, there were hints (like the VIX) and lopsided Call buying inverse of the lopsided Put buying a couple weeks earlier. Now we have Expiration to contend with, but overall S&P pattern is a breakdown from distribution curve.

Political damage control - resulting from this 'hotter' CPI number, is a bit silly.

In a sense many (including us) perceived modest slowing in 'some' areas, but not significantly yet, or at least not in time to slow the pace in this report.

It's silly politically, because the Fed is simply following their plan and would do so anyway. That's why I've often mentioned the 4-5% level for 'business rates' and am pleased that seems to be a level that could indeed 'cap' the Fed's run. I thought the Fed would go forth with a rate hike of 75 bp or so 'anyway' so in this case the number is not as destabilizing as a response by S&P suggests. I can only presume others thought the Fed wouldn't stay-the-course, or needed a bit of help to get them to be 'friendlier'. I'm not sure this is enough for them to bend. And you can add to inflation the possible implications of a Transport (rail) strike. I thought everyone was pleased with wages, do they want more in a time of inflation? The answer's yes, but will they persist in economic peril?

So, the world's in trouble: 

Oil prices and wage hikes started it, excessive and urgent 'emergency' stimulus fueled it, with easy money kept on for far too long given the speed of prior recovery, and Putin's war distorted matters further. I'd tried to point-out the pitfalls and rebounds within the process, and it's not easy even if we got most of it pretty correctly. Now I can't say we won't drop 20% in the S&P, but not the broad market, which like last time isn't that strong. Most of the excess has been in the Indexes (concentration), so that's the risk and it is a segment that responds to linear thinking (basic chart point penetrations, a contrarian sometimes goes against that, but it's not always wise to do so).

Media excitement aside, S&P (SPX) got right to our target area for the recent rally, S&P 4100 give-or-take. Now we have to contend with Quarterly Expiration, so even if we're going to remain embroiled in volatile chaos for weeks, allow for it, and allow for 'surprises' coming from the geopolitical side of matters.

We smile hearing about Semiconductors (SMH) declining amidst this market turmoil. That's because it's fairly common to see the SOX on defense in the Fall, and it also frequently becomes one of the best rebound vehicles thereafter. I must note there was one exception today, and that was AEHR Test Sytems (AEHR). 

We are likely a minority that discovered this stock, and I'm please to see such little discussion out there about AEHR Test Systems. From our entry around 6-7 -and proclamation as stock of the year 'last' year, and due to its volatility a second entry we through reasonable just a couple months ago again near the 7 area, it's a micro-cap becoming small-cap, maybe not so small-cap after a reasonable period of time. We'll see. I realize people are nervous about heavy pullbacks because it's been seen before, it's thin with often-wide spreads too.

So besides the exception of a unique growth phase unfolding for AEHR, I've long ago disengaged from significant portions of stocks like AMD (sold parts in three tranches almost double current prices), or too soon years ago in Intel or Texas Instruments. Never thought I'd get a chance to pick either at reduced prices of significance, but so far they're heading that way. Others like Nvidia (NVDA) I did not favor, mostly because their code word for 'gaming' meant crypto and that has been an area to avoid for a long time. Semi stocks 'may' be a buy in a month or two, as developments evolve.

In-sum: 

Turbulent times are not surprising, even the VIX hinted at trader fears regarding the CPI report, by advancing a point while S&P declined yesterday (of course they are usually inverse, so we pointed that out). Also S&P ~ 4100 was our target for the move.

What we didn't get was a rebound after the slide on initial 'so-called' shocking news. The rollover was ideally looked for with variables around the CPI and of course the upcoming Quarterly Expiration. None of it's bullish for seasonals, as I continue to think you'd need to shift the fundamentals (such as ceasefire in the war) to get any meaningful upside. And even that would be tricky for the Senior Indexes and major multinational stocks, because of global stagflation. 

Either way the Fed was expected to hike rates this month. That's unchanged. The inflation is somewhat 'sticky' as I've noted periodically, because you won't get wages 'clawed back' (although you will get layoffs), and the drought plus climate change overall sort of permanently will keep 'most' foodstuffs above the prices we all got used to (even more so in restaurants).

The Fed won't yet give up on their rearview mirror 2% inflation goal, which as you saw in a New York Fed chart last night, they expect to see in a year. Well one way to get that is to 'break something'. If so we don't know what that will be or if it's likely systemic. Housing cracking?? The worst cases of 'systemic' breaks 'do' propel most Feds to intervene...or pivot. 

I'm not suggesting any stock is immune to declines in a general exodus from the market, as of course the Fed intends to 'stay the course' even if they know they're overshooting (while they proclaim concern about doing just that). Sure, my view doesn't matter to 'the market', but it's seasonally weak and only if we get an end to the war -and avoid a new one over Taiwan- do I see big gains in this year, because seasonals do matter, and this market reached our rebound target. That rebound was not a mirage as it gave cushion for this decline. 

Violent swings are a norm in a market where our Fed isn't going to change direction or pivot soon, plus you have deeper stagflation problems in other countries, with central bankers having an even greater challenge than ours in the USA. War expansion would bring a harder landing, or worse yet if a twin front developed (Taiwan), but ideally that won't happen. 

Yields are marching higher, society's bifurcated, people generally do not have the excess funds for discretionary spending that seems to be evident (yes the segments that have it have it, the segment that rents is being pressured more than homeowners, and taxing authorities generally aren't being very friendly). 

Some of the inventory and dislocations that result in 'deflationary' influences, at this point are not appearing in the data generally, and that's complicating a clear understanding of today's CPI report. Some retailers say they are able to move inventory, so again it's bifurcated. The 'crash' (resumption or renewed) of 2022 seems apparent, although it's concentrated in the Indexes (and that relates to a bite being taken out of Apple (AAPL) too).

This was algo-driven selling today, and we probably get more of that when/if we take out last weeks lows in S&P (under 3900), and then holding action is possible ahead of Quarterly Expiration. This time I agree with Gunlach as far as the Fed taking a step back and giving the easing prices to evolve through the system (because today's report was not entirely accurate 'we' suspect as relates to the recent rapid easing in some areas), but the Fed is hell-bent on a hike (just it ought to be 25 basis point not 75 or 1 full point as Nomura says).

More By This Author:

Market Briefing For Tuesday, Sept. 13, 2022
Market Briefing For Monday, Sept. 12
Market Briefing For Friday, Sept. 9