Will the recent CPI report signal a genuine rebound for stocks or merely a temporary pause in a downtrend? Dive into the analysis to uncover the market's next moves amidst rising uncertainty and investor sentiment challenges.
Will stock prices rebound after the CPI release?
Stocks continued their downtrend on Tuesday, with the S&P 500 reaching a new local low of 5,528.41 and closing 0.76% lower - its lowest level since September 11 last year. Sentiment remained negative due to fears surrounding tariff policies and geopolitical uncertainty.
Today, the S&P 500 is set to open 1.0% higher following the release of the Consumer Price Index (CPI), which came in slightly lower than expected at +0.2% month-over-month. As a result, the market appears poised for a rebound after recent declines. However, it remains unclear whether this is just an upward correction or the beginning of a consolidation.
Investor sentiment remains weak, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that only 19.3% of individual investors are bullish, while 57.1% of them are bearish.
The S&P 500 accelerated its downtrend on Tuesday, as we can see on the daily chart.
Nasdaq 100: Uncertainty After Breaking Below 20,000
The Nasdaq 100 closed 0.28% lower on Tuesday following Monday’s sell-off, basically moving sideways in consolidation. The key resistance level is now around 19,800-20,000, marked by the recent support. Today, the Nasdaq 100 is expected to open 1.5% higher following the CPI release.
VIX Edges Higher
The VIX index, a measure of market volatility, reached a new local high of 29.57 yesterday, signaling rising market fear.
Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
S&P 500 Futures Contract: Rebound Attempt
This morning, the S&P 500 futures contract rebounded following the CPI release, reaching a high of 5,675. For now, this appears to be a consolidation within a broader downtrend. Resistance is at 5,700-5,750, while support remains around 5,550.
The contract continues to trade well below its downward trendline.
Conclusion
Stocks are set to open higher today following lower-than-expected inflation data. However, will this be enough to reverse the market’s short-term downtrend? For now, it appears to be just a pause.
Given rising geopolitical uncertainty and worsening investor sentiment, no clear positive signals are evident. It seems the bull market may be due for a longer pause.
Quoting my Stock Price Forecast for March 2025 “the stock market is poised for a positive start to the month, though this may simply be another part of its medium-term consolidation. The S&P 500 keeps fluctuating following its post-election rally.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 extended its downtrend yesterday.
- CPI data may trigger a short-term rebound.
- In my opinion, the short-term outlook is neutral, and no speculative positions are justified from the risk/reward point of view.
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Thank you.
Paul Rejczak,
Stock Trading Strategist