Morning Notes — CPI and Terminal Fed Expectations

SPX: The hotter CPI print lifts terminal Fed rate expectations to 4.15% and pressures the S&P 500 back below the 4020-4040 range that previously defined pattern resistance. The next level of technical support sits at ~3900 and we expect that level to hold as long as terminal rates stay below ~4.25%. Equity sentiment has returned to bearish extremes and positioning indicators remain near cycle lows, which makes incremental downside more difficult to achieve. However, a terminal Fed rate north of ~4.50% would likely result in a test of the June lows at ~3660 with higher terminal expectations leading to lower SPX levels. And a break below 3660 would likely include signs of capitulation to even more significant technical support near 3500. More inflation data ahead this week with August PPI (leads CPI) due tomorrow, Empire/Philadelphia Fed on Thursday and Michigan sentiment Friday.