The S&P 500 and Nasdaq Composite closed higher on Tuesday, with the market initially reacting to a stronger than expected Producer Price Index report before Fed Chairman Powell’s comments reassured investors. The return of meme stocks like GameStop and AMC Entertainment has been in the spotlight, with other stocks also making significant moves. The extreme volatility in these stocks has raised concerns among industry veterans, with GameStop’s market cap exceeding that of Walgreens at one point and trading at a high P/E multiple of ~1200.
As earnings season winds down, focus is shifting back to economic data, with reports like the stronger than expected PPI catching analysts by surprise. While Chairman Powell hinted at eventual rate cuts, market expectations suggest a cut may not happen until September. The morning’s CPI and Retail Sales reports may support the case for cuts, as CPI and Core CPI remained in line with expectations on a month-over-month and year-over-year basis. Retail Sales, however, came in flat compared to expectations of an increase.
President Biden’s plan to increase tariffs on China has raised concerns about inflation and interest rates in the market. The potential for retaliatory tariffs from China could complicate the situation further, potentially causing the Fed to delay rate cuts. Earnings reports from Cisco Systems and Walmart are highly anticipated, with Cisco Systems down 3% for the year and Walmart’s outlook on consumer spending seen as insightful, especially in light of recent Retail Sales data.
The market is currently optimistic following the morning’s economic news, with both stocks and bonds trading higher in premarket. While volatility is down, there are still potential sources of volatility ahead, including speeches from Fed members. With all-time highs in sight for the S&P 500 and Nasdaq Composite, there is a possibility of breaking through those levels. Investors are advised to stick with their investing plan and long-term objectives amid the market’s current dynamics.
Overall, the market’s reaction to economic data, earnings reports, and geopolitical developments will likely dictate future trends. The volatility in meme stocks, concerns about inflation and interest rates, and the ongoing trade tensions with China are key factors to watch. Despite potential sources of volatility, markets seem to be reacting positively for now, with a focus on reaching new all-time highs. Investors are encouraged to stay informed and stick with their investment plans in light of ongoing market developments.
