What's next after S&P 500’s worst inflation data day in years

financialpost.com:

The S&P 500 index blew past a series of troubling markers in its relentless rally to 5,000. Now, after the rout on Feb. 13, investors are staring at a potentially long way down before they find support.

Signs of overexuberance are everywhere. The S&P 500s 15-week rally, in which it gained 22 per cent through Feb. 12’s close, pushed the gauge 13 per cent above its 200-day moving average, something that has occurred on just five per cent of the trading days this century. Hedge funds’ exposure to money-losing tech firms is hovering near a two-year high. And positioning across the stock market is stretched and demand for loss protection muted.

The cold water to douse those flames arrived on the morning of Feb. 13 in the form of consumer price index (CPI) data showing inflation remains stickier than expected. The rally that had been predicated on the belief that the United States Federal Reserve’s imminent pivot to interest rate cuts slammed into reality, as those bets are being frantically rolled back.

“The data put in doubt investors’ optimism that the central bank’s interest-rate cuts are basically a done deal,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance LLC, said. “It reinforced the idea that interest rate cuts are not coming any time soon. And if that’s the case, all of a sudden, the stock market rally is looking stretched.”

The risk-off momentum pushed the S&P 500 down 1.4 per cent on Feb. 13, its worst CPI-day performance since September 2022. The Nasdaq 100 index fell 1.6 per cent, while the stocks with the highest short interest dropped 5.5 per cent in the biggest loss in almost a year. Roughly 91 per cent of the stocks on the New York Stock Exchange traded lower, the most since March