Inside Markets — Catalyst-Heavy Week

The upcoming catalyst-heavy week will include a number of reports including CPI, PPI, trade prices, retail sales and jobless claims. NAHB Housing Index and University of Mich Consumer Sentiment. Equity markets are in a ‘bad news is bad’ phase given growth concerns and hotter-than-expected inflation data is no longer the main concern. A hot CPI print would lead to a repricing of September rate cut expectations but could also be perceived as a positive indicator for demand/growth. A hotter CPI print could see the SPX end the day higher, while a weaker retail sales report could result in a retest of ~5150 and maybe challenge the 200-day moving average at ~5032.

Monday’s low of ~5150 fit our forecast for the SPX to find support in the 5070-5130 range. We continue to view the recent pullback as a functional correction rather than the start of a bear market, but this is no time to be complacent. The recent spike in volatility will likely weigh on forward multiples and act as a headwind for rally attempts over the next ~2 months. The only recent exception comes from 2018 when the SPX broke its bullish trend on February 5 on a VIX spike to 37.32. The SPX made a cycle low four days later (peak-to-trough decline -11.5%) and retested the low five weeks later before delivering a +14% return over the next seven months. The retest of the low five weeks later is the most important takeaway.