S&P 500: Key Support Cushions Fall Post Hot CPI - Index Could Head Back to 5000

investing.com:

Inflation swaps won again, with yesterday’s CPI report coming in at 3.1% y/y versus the median analysts’ estimates for 2.9%, while inflation swaps were looking at 3%.

The bigger shock was that core CPI came in at 3.9%, which was higher than estimates for 3.7% and in line with December’s reading, suggesting the pace of disinflation may have stalled.

The CPI report was just filled with surprise in January, from the headline to the core to the supercore, which rose a jaw-dropping 0.85% during January, its biggest advance since the spring of 2022.

The report sent the odds for a rate cut in March down to just 10%, with the market now pricing in less than four rate cuts by December. The market had been pricing in more than 7.5 rate cuts, just a few weeks back.

It sent rates across the curve sharply higher, as the 10-year quickly increased and is back above 4.3%.

At this point, where rates go is a big question because I could easily argue that as long as the labor market stays tight, GDP remains strong, and inflation stays elevated, the 10-year should be trading much higher than the 2-year and may be higher than Fed Funds.

But right now, there is a level of resistance at 4.35%. If the 10-year gets above 4.35%, then it is off to the races, and we could be looking at a 4.7% number soon.

This sent the S&P 500 lower yesterday by around 1.4% and sent the VIX screaming higher. The S&P 500 fell sharply from the rising wedge pattern highlighted in the last few days.

The index managed to find support and bounce right off the 61.8% retracement level when measuring from the base of the wedge.

Technically, the target falling out of the wedge should be the 4,850 level, but from a bearish point of view, I don’t like that the index found