Don't Panic: Stock Market Is About To Enter Correction Territory!
In a Nutshell
Markets rallied on softer-than-expected core CPI (0.2% vs 0.3% expected) despite headline inflation hitting 4.2%, but are now reversing lower amid rising geopolitical tensions with Iran. A potential U.S. attack on Iran is expected to trigger further selling, though the move may already be partially priced in. The speaker holds a small short in MSTR as a day trade while monitoring for either escalation or a peace deal.
These notes were generated by AI and may contain inaccuracies.
The big question is why markets responded positively if inflation is at three-year highs. Overall CPI came in at 4.2%, matching expectations after rising from 3.8% the prior month. Everyone already anticipated higher overall CPI due to Middle East developments. The Federal Reserve cannot control oil prices or Middle East events.
The Federal Reserve's main focus is core CPI, which came in at 2.9% versus the 2.9% expectation. For the month-over-month change, core CPI increased only 0.2% against the expected 0.3% increase. Core CPI measures all items less food and energy. Markets celebrated because core CPI came in lower than expected for the monthly increase, showing these items are not increasing as quickly as previously anticipated.
The official BLS report at bls.gov/cpi confirms that for May, overall CPI increased 0.5% while core CPI increased only 0.2% versus the 0.3% expectation. The concern was whether higher oil prices had impacted core CPI. The data shows core CPI did not increase as much as feared.
Markets rallied and peaked at 711 with an overbought reversal, then began selling off. Overall CPI at 4.2% is double the Federal Reserve's mandate, and consumers are paying 5% more for goods this month than last month and 4.2% more over the past 12 months.
Markets attempted recovery in recent weeks because there were no attacks and the US and Iran discussed peace deals. The tone has shifted from peace deal expectations to expectations that Trump will attack Iran following the attack on the US Apache helicopter. Markets will likely sell off further once an attack is announced. When an actual attack occurs, markets may react but possibly not as strongly since the expectation will already be factored in.
If a peace deal materializes instead of an attack, markets are likely to recover. The current sentiment is bearish with fear of a possible attack. A small short position exists in MSTR with approximately $700 in unrealized gains and 3.5% potential downside if BTC breaks support. This is a day trade position, not intended to be held overnight.
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