Since last Monday, the markets have been in a risk-off mood, and the reflation trade has continued to sour. This is evident from a variety of perspectives such as long-term Treasury yields continuing to move lower, cyclical stocks have been among the worst performers, and overall indices finally starting to weaken. On an absolute basis, the damage is minimal as the S&P 500 (SPY) is just over 3% off all-time highs, but this is masking more weakness under the surface. As of Monday's close, only 48% of stocks are trading above their 50-day moving average which reflects the market's state from a more bottom-up perspective. It's possible that earnings season could serve as a reprieve. However, we should remain open to the possibility that the market could continue selling-off especially given the gains from the March bottom, and many months since the stock market has been tested with any sort of selling pressure. We’ll dive into these topics and review the market's latest developments below….(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).
Last Tuesday, the stock market gapped down as banks reported earnings which disappointed in terms of their outlook. The CPI report also came in higher than expected at 5.4% which was higher than expectations and marked another multi-year high.
Stocks put together an AM rally to new highs but these gains were quickly reversed with the index closing slightly lower.