Over the past week, the S&P 500 has had both its best day and worst day in many months. This was driven in part by oil and commodities, which had their best day and worst day in over 12 years.
In other words, the market is highly volatile as it deals with extremely dramatic events. This sort of action doesn't occur in bull markets - it is a function of bear markets when market participants are highly emotional, and valuation and fundamentals are not important.
The volatility is likely to continue today as market players digest a CPI report that is anticipated to come in at around 7.8%, which would be a new 40-year high. With gasoline, commodities, and food all rising due to the Ukraine war, this inflationary pressure is not going to go away soon, and that is going to be one of the most severe economic consequences of the situation.
Ukraine and Russia are scheduled to hold more negotiations today, and there will be a number of headlines that will induce a market reaction. Oil is already bouncing this morning as concerns start to rebuild and futures are indicated lower.
While the market is likely to remain very volatile, one positive is that there has been more focus on stock picking. Secondary stocks, small-caps, and names that have been under pressure for over a year are seeing more interest, and there are some signs of technical support. These stocks are jerked around quickly when there are macro-economic headlines, but the dip buyers are coming back to this each time, and there are some with very solid valuations.
My game plan is to continue to hold high levels of cash and to try to take advantage of opportunities caused by the big market swings. There are a number of names I'd like to add as they develop further, and I will use volatility to slowly add.
Early indications are negative, but things will move fast when CPI hits 8.30 am ET
