This CPI “Whisper” Has Stocks Rallying

Stocks jumped higher this morning as bulls came flooding back to the market. The Dow, S&P, and Nasdaq Composite all enjoyed significant gains through noon, helped along by rising tech shares.

Microsoft (NASDAQ: MSFT) led Big Tech higher while Facebook-parent Meta (NASDAQ: FB) rebounded over 2%. FB is still down over 30% following its earnings-driven selloff, though.

For tech investors, FB was a cautionary tale. The rapid dip punished Big Tech bulls after it became clear that the company would miss its initial 2022 goals. A similar fate may be coming for other highly-valued, low-profit tech companies.

“While we are somewhat less cautious about expensive tech, we continue to encourage investors to be careful about unprofitable, expensive tech stocks with low quality scores,” said Bernstein’s Toni Sacconaghi in a note to clients.

“We continue to have a preference toward lower priced/value tech names, and note that the least expensive quintile of tech has the highest expected 5-year growth outlook in more than a decade, and valuations are attractive relative to history.”

Today’s rally likely has to do with an overnight note from JPMorgan’s trading desk, which said “there are whispers that Thursday’s [Consumer Price Index] will print below expectations.”

The bank’s head of US cash trading, Elan Luger, expanded upon what tomorrow’s Consumer Price index (CPI) release could mean for stocks:

“The CPI print this Thursday is getting more hype than any economic data in recent memory. Though I am still not intermediate or long term bullish on markets (in a nutshell I still think if growth holds up, Fed will keep hiking; good news will be met with a more hawkish Fed and bad news is well… bad news), it does feel to me like the risk/reward is skewed to the upside for CPI.”

That’s exactly the kind of thing that bulls wanted to hear.

“Core CPI upside has been driven primarily by rising auto and, to lesser extent, apparel and furniture prices.” Luger continued, adding that “transportation services costs and shelter prices growth continues to creep higher.”

“Real time data suggests used car prices have rolled over a bit. So net to me – with market expecting a hot inflation print and some signs pointing to a potential miss,” Luger said.

“I don’t think the market goes down as much on higher CPI as it would go up on a miss. So tactically bullish for a few days here.”

Chart data compiled by our own in-house analysts suggests the same. Back on January 31st, we identified a potential bullish breakout for the S&P after it climbed above the 10-day moving average. The index then triggered that breakout on February 2nd when it surpassed the 100-day moving average, right before it dove lower in response to poor FB earnings.

Now, though, the S&P is back above the 100-day moving average. A cooler-than-expected CPI print might be enough to punch the market into a full-fledged rally as it clears resistance at the February highs.

A hotter-than-expected print, on the other hand, could send stocks lower. But would it be enough to spark another major retracement? Probably not. Momentum still skews very bullish.

Because of this, it may behoove investors to watch the S&P closely tomorrow. A bullish CPI reading may cause a significant “melt-up” to follow.

Possibly even to new highs before the month is finished.


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