After two days of selling, the market was mixed on Friday. What is clear is the change in market character this week. The price-action bulls who have been touting a "Goldilocks" economic environment lost their momentum.
Much of the upside action recently was driven by poor positioning and too many aggressive bears. Most of the shorts were squeezed out, and a fear of missing out sucked up some cash, but there is no denying that the Fed is still leaning hawkish. There are increased worries about the upcoming consumer price index report, and actually, some talk about a potential rebound in some inflationary pressures.
The odds of more rate hikes increased this week, and if there is a hot CPI report on Tuesday, that could catch some investors by surprise. It is rather ironic that the market turned down right after the shorts substantially reduced positions.
Earnings season is winding down, but there are still quite a few small-cap names that will be reporting. Pockets of speculative action have cooled off as the AI frenzy topped out this week. China names also rolled over hard.
There are a number of signs that a deeper pullback is developing, but the biggest problem for the bulls is that Goldilocks has left town. Inflation may turn out to be hotter than expected, and economic growth could cool even more if the Fed keeps raising rates.
Have a great weekend. I'll see you on Monday.
