The highly-anticipated CPI report came in pretty much as expected. There were slightly hot readings on shelter costs, but overall the annual rate fell to 6.0% from 6.4% last month.
The market response is positive primarily because it pretty much guarantees that the Fed will raise rates by just 0.25% at its next meeting on March 22. Fed Fund Futures now reflect an 85% chance of a 0.25% hike. Just a week ago, there was an 80% chance of a 0.5%, but the blow-up of SVB Financial Group (SIVB) changed expectations very fast.
We still have the PPI report on Wednesday and other data, such as housing starts and weekly unemployment claims, before the next Fed decision, but there is unlikely to be anything significant enough to shift the Fed from a 0.25% hike at this point.
That is positive news for the stock market as it allows market players to factor that in and eliminates some risk. There is steady buying so far on Tuesday, with breadth running better than four to one positive. The bounce is also preventing any expansion in stocks hitting new 12-month lows.
Going forward, there will be more concern about the economic fallout created by the bank debacle, but the consensus view is that most of the drama is contained, but there may be some revisions to earnings expectations.
I'm putting some additional funds to work in a few small-caps like Beyond Air (XAIR) , Sensus Healthcare (SRTS) , and CECO Environmental (CECO) , but most charts still need more work before they can be trusted. There isn't any strong reason to believe right now that the current bounce will last very long. The best thing the bulls have going for them is that it isn't likely to be any big news before the next Fed meeting.
I'll continue to look for some opportunities to put more cash to work, but I'm absolutely not feeling any FOMO (fear of missing out) at this point. There are still substantial economic obstacles ahead, and there should be plenty of opportunities to take advantage of volatility as things progress.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider XAIR and SRTS to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)