Why stocks didn’t crash after inflation hit yet another new high

Free After-Hours Analysis:

The S&P 500 fell out of bed Wednesday morning and dropped more than 1% after June’s inflation reading hit yet another new high.

While the increase in inflation over May was only a fraction of a percent, the increase shows the Fed still doesn’t have control over this economy. (So much for transitory…)

But rather than rush for the exits, most owners shrugged at the inflation headlines and opening weakness and continued holding. When people stop selling the headlines, those headlines stop mattering and that indifference was the name of the game Wednesday afternoon. By the close, the index recovered more than 2/3 of those early losses, even briefly making it into the green.

That’s not the price action we see from a fragile market. If the indexes were on the verge of another collapse, Wednesday’s inflation headlines were more than enough to send panicked owners running for cover. But here’s the thing, after 6 months of panic selling, it seems we finally ran out of panicked sellers. And more than just that, the first half’s sellers were replaced by confident dip buyers that demonstrated a willingness to buy and hold this uncertainty.

While there are no guarantees prices cannot fall to new lows if the headlines get materially worse, Wednesday’s constructive price action tells us it will take something even bigger than 9.1% inflation to send these stubbornly confident owners running for cover.

If the market opens higher Thursday morning, rather than argue with that counter-intuitive strength, jump aboard the bandwagon. Moves that don’t make sense often make some of the best trades (contrarian investing). Put a stop under Wednesday’s close and see where this latest wave takes us.

All of that said, the market is transitioning into a more choppy phase and that means we should be ready to take profits earlier and more often than we were doing this spring.

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