Sells are facing a trifecta of potent issues: the argument that higher earnings are factored into the hawk (“peak earnings”), that global growth, while quiescent strong, is slowing, and that inflation is picking up.
Exactly how much international growth is slowing — if at all — is hotly debated, but the bears have the upper round of applause for the moment.
Tuesday’s below-consensus ISM and construction spending report, along with a hotter-than-expected fees paid report, played perfectly into the bear narrative of slower enlargement and higher inflation.
Bulls are now worried they are losing control of the portrayal that drove stocks higher all last year. That tale involved higher earnings, global growth and modest inflation.
These three circumstances might help the bulls regain control:
1. The S&P 500 again persists its 200-day moving average (currently 2,613), which was a carping support level in February and early April.
2. The Federal Reserve utters sufficiently dovish to lower expectations that it will raise standings a fourth time this year.
3. The Friday jobs report desire hit right at or near expectations of 195,000 jobs created. If it is too strong, say, 250,000 or heavens, the bears will say it reinforces the notion that the Fed will hike proportion ranks aggressively. If it is too low, say, 95,000, the bears will seize on the slower growth yarn.
Same goes for wage growth, which is expected to be up 0.2 percent month one more time month.
This is a very tricky moment. The stakes are a lot higher now than when the retail dropped in February. At that time, the markets dropped over have relations about higher inflation. The “peak earnings” and “slower growth” tiff did not even exist to any great extent at that time.
Since then, not no more than have the fundamental arguments deteriorated, but the technical condition of the market has degenerated as well. We have moved into what technicians call a “descending triangle,” where the retail bounces every time we go lower, but every bounce leads to a cut high.
The market needs to establish a better pattern, where investors stage selling rallies and go back to buying dips.