The consumer price index was hot, and rates are rising, but the bulls just don't care.
Once again, the market rallied strongly on news that did not appear to be very positive. Year-over-year CPI came in higher than expected, which caused expectations for future Fed interest rates to increase, but the market held up extremely well. A similar positive reaction recently occurred when stocks held up well in a poor earnings season. The market also held up well when the Fed and Fed Chair Jerome Powell indicated a hawkish bias.
The market strength was even more surprising given some deterioration in technical conditions, but what seems to be driving the strength is that nearly everyone seems to think that it is illogical and can not last much longer. It has already persisted far longer than many bearish pundits and strategists thought, and there is still no major technical weakness.
Overall the gains were fairly modest, and breadth was negative at around 3800 gainers to 4250 decliners, but a few months ago, even a very minor CPI miss would have caused very aggressive selling.
The business media always celebrates market upside, but for market players, this is an extremely difficult market currently. The market is too extended and illogical to justify being an aggressive buyer, but it is too strong to justify being an aggressive seller.
The simplest way to characterize what is happening is that the bulls, who are primarily focused on positive price action, are overwhelming the bears, who are primarily focused on economic data and a negative big-picture narrative. The "stupid" bulls who don't care about fundamentals or valuations are overwhelming the "brilliant" insight of the bears.
It is one of the most unusual market environments I can recall, and it is likely to lead to some very elevated volatility down the road, but anyone that thinks they can predict the action in the short term has not been paying very close attention.
Have a good evening. I'm taking my Valentine out to dinner, and I will see you in the morning.
