SPX Spotlight - Tuesday, Jan 14, 2025: Market Chops on Soft PPI Data
CPI incoming before we could digest softer-than-expected PPI
Introduction
The SPX opened at 5,836.22, reached a high of 5,871.63, touched a low of 5,829.48, and ultimately closed at 5,842.91, gaining 0.1% for the day. The index's modest gain was supported by positive reactions to the PPI data, which showed wholesale prices rising slower than expected last month.
Market Drivers and Economic Reports
The S&P 500's modest gain on Tuesday, January 14, 2025, was primarily driven by the release of softer-than-expected Producer Price Index (PPI) data, which provided insights into wholesale inflation trends.
PPI Data
The December PPI report showed that final demand increased by 3.3% year-over-year, slightly below the experts' estimate of 3.4%. When excluding volatile food and energy sectors, the core PPI rose by 3.5%, significantly lower than the predicted 3.8%. This softer PPI print suggests that inflationary pressures at the producer level may be easing, potentially giving the Federal Reserve more flexibility in its monetary policy decisions.
Market Reaction
The softer PPI data initially boosted investor sentiment, as it hinted at the possibility of controlled inflation. However, the market's reaction was somewhat muted, with traders remaining cautious ahead of the more critical Consumer Price Index (CPI) report due the following day.
Treasury Yields
Despite the softer PPI data, Treasury yields remained relatively stable. The 10-year yield held steady at 4.79%, near its highest level in over a year. This suggests that while investors were encouraged by the PPI report, they are still maintaining a cautious outlook on inflation and interest rates.
Technical Analysis
Recap
As per the bear case discussed in our previous article, we gapped up on a bad PPI report and observed a selloff to gap fill and approach the lower trendline.
SPX was ranged bound from that point onwards and chopped for rest of the session.
Bull/Bear Case
The way the markets are moving, the most probably structure is shown in the image above on SPX hourly chart.
CPI report will add significant volatility to the market making extremely daunting to gauge the direction.
However, the outlook remains bullish considering a recent bounce from gap fill and markets holding the trendline despite volatility and choppiness.
Market Sentiment and Key Indicators
The purple region has acted like magnet previously and it did in today’s session as well. A clean close below the region is critical for the market to form an upward trending structure.
We have CPI data coming in the morning that could lead to chaos in the markets with same volatility as experienced today.
Key Takeaways & What’s Next
The S&P 500 is currently navigating a complex market environment, with several key factors influencing its near-term trajectory:
Technical Consolidation: The index has been consolidating in a tight range, forming a potential bullish coiling pattern near the 5,800 level. This compression could set the stage for a significant move in either direction.
Divergence in Market Breadth: While the cap-weighted S&P 500 appears bullish, the equal-weighted version shows signs of weakness. Only 38% of S&P 500 stocks are trading above their 100-day moving average, indicating underlying market fragility.
Economic Data Impact: Recent jobs data surprised markets, potentially reducing the chances of rate cuts in 2025. This has led to a reassessment of market expectations.
Upcoming Catalysts: Investors should closely monitor the Consumer Price Index (CPI) data release, as it could significantly impact market direction and Federal Reserve policy expectations.
Support and Resistance Levels: Key support for the S&P 500 lies around 5,800, while resistance is established near 5,870. A break above this resistance could open the path to the 6,000 level.
Closing Thoughts
As we wrap up today's market analysis, it's clear that the S&P 500 is at a critical juncture. The index's modest gain today, despite the softer PPI data, highlights the cautious sentiment prevailing in the market. Investors seem to be holding their breath, waiting for tomorrow's CPI report to provide clearer direction.
We'd love to hear your thoughts on today's market action and your expectations for tomorrow's CPI report. Do you think we're on the verge of a breakout, or are you anticipating a potential pullback? Share your insights in the comments below.