Good Morning Investors,
Tuesday’s CPI report at 8:30 a.m. ET could define the next phase of this market rally. After Monday's blistering rally, the S&P 500 surged 3.3%, the Nasdaq soared 4.4%, and the Dow added 1,100 points — markets have taken a breath, with futures pointing slightly lower as traders eye inflation data for confirmation.
Pre-Market Actions
Stock index futures are in a slight retreat this morning as the euphoria from Monday’s tariff-driven rally gives way to cautious positioning ahead of the CPI report. S&P 500 futures are down 0.4%, Dow Jones Industrial Average futures slipped 0.2%, and Nasdaq-100 futures declined 0.4%. The 10-year Treasury yield, which spiked yesterday on delayed rate cut expectations, has edged slightly lower in early trading. The dollar pulled back modestly, gold ticked up, and oil prices remain steady amid mixed global growth signals.
Internationally, Japan’s Nikkei touched a near three-month high, European shares are slightly higher, led by utilities and industrials, and Chinese equities posted marginal gains as the yuan strengthened on trade optimism. Markets are now in wait-and-see mode, positioning themselves for a pivotal macro read.
CPI: The Moment of Truth
Today’s CPI report at 8:30 a.m. will be critical. If the print comes in under expectations, the short squeeze I wrote about yesterday may have more room to run. We already saw the S&P 500 reach the 5,800 level I flagged, and a lighter-than-expected inflation number could force hedge funds to continue covering shorts, driving us toward 6,000. This is all playing out after April data showed retail investors as net buyers and hedge funds as net sellers — positioning that can amplify sharp moves.
However, if CPI comes in hotter than expected, I expect the S&P 500 to retest the 5,750 level, which served as resistance in March and now acts as critical support. That level aligns with both the 100- and 200-day moving averages, making it a significant technical pivot.
This will be the first CPI print where we begin to see the effects of President Trump’s tariffs. It won’t show the full impact but it’s the start. Futures inflation reads suggest we’ll see more in the months ahead.
Rates and Repricing
While stocks surged Monday, so did yields. That’s because the market is pushing its expectations for Fed rate cuts further out, with the first one now priced for September. Goldman Sachs released a note saying it sees the first cut not until December. Yields have ticked slightly lower this morning ahead of CPI, but the message is clear: the Fed needs to see inflation fall before acting. For markets to sustain these valuation levels, monetary easing is a key ingredient.
Recession Risk Fades (For Now)
With the US–China tariff pause in place, and possible trade agreements with India and the EU on the table before the 90-day deadline ends, the odds of a recession are falling — for now. I still believe this is a growth scare, not a recession, but trade talks with China have historically been volatile. One threat or headline can reverse sentiment fast. That remains the risk.
That said, I’ve been vocal about being long and encouraging dip-buying through April. It’s great to see retail investors rewarded for staying disciplined, and any future pullbacks should be viewed as opportunity, not risk for long term investors.
Tech Leads the Charge
Big Tech rallied hard Monday: Amazon +8.1%, Meta +7.9%, Tesla +6.8%, Apple +6.3%, Nvidia +5.4%. Microsoft and Alphabet also posted solid gains. These names benefited most from tariff relief and remain critical to any breakout. Microsoft even set a new closing high for 2025.
The AI trade is back with force. Chips, hyperscalers, cybersecurity, and software are all rallying. Even if CPI causes a pause, the longer-term tech thesis is strong and intact.
US–China Trade Truce Update
The Geneva talks yielded a 90-day pause on reciprocal tariffs and reset baseline rates to 10%. With the fentanyl-related 20% still in place, Chinese goods now face a 30% effective rate. This is a clear de-escalation, and both sides have left the door open for further negotiations. President Trump and President Xi are expected to speak later this week.
This move has lifted recession fears and triggered a rerating of growth expectations. But let’s not get carried away. The structural issues like AI exports, tech access, broader trade barriers remain unsolved. Still, sentiment has shifted materially.
Analyst Recommendations
• Fox Corp: Barclays raises target to $52 from $45, citing continued industry outperformance.
• Karyopharm Therapeutics Inc: Barclays raises target to $10 from $5 post-stock split.
• Ziff Davis Inc: Barclays cuts target to $34 from $48 due to negative organic growth YTD.
Final Word
Today is a pivotal day. Inflation data will shape both the near-term direction and the broader macro narrative. A cooler CPI print gives Powell room to ease. A hotter one reintroduces pressure.
My base case remains intact: no recession, but continued volatility. Stay grounded, stay invested, and continue to treat any correction as an opportunity — not a reason to panic.
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.