June 10, 2022
Good morning,
When news flow in the way of economic data is light, and Fed Governors are mum (blacked-out ahead of FOMC meetings), and market volume is low, volatility often jumps up and markets decline for no apparent reason. There were no headlines that pointed to a -2.4% loss on the S&P 500 Index yesterday. Clearly, the recent support of the market from its oversold condition has runout.
The one important data point released this week printed this morning – U.S. May Consumer Price Index (CPI). The headline number was +1% mo/mo vs an expected +.7%. The yr/yr number was +8.6% vs expected +8.3%. That doesn’t appear to be a very significant miss mathematically, the problem for the market is that the miss is in the wrong direction. Inflation appears stronger for May, and the “inflation-is-peaking-now“ camp may have to re-evaluate their models and possibly sell the risk they’ve only recently put on. In sum, a -1.5% gap down for Futures this morning following the CPI release. Volatility is back.
Be well,
Mike