The Consumer Price Index Report Suggests a Soft Landing for the Stock Market

Investors are pondering whether the stock market will recover swiftly following its recent slump. The present circumstances resemble a widely known saying among those involved in Wall Street activities – the initial 5% decrease usually takes longer in a correction because individuals tend to purchase during the dip, but the subsequent 5% decline happens at a much faster pace. Over the past seven trading sessions, the S&P 500 has witnessed a drop in six of them, yet it currently only stands 3% below its recent peak.

Regardless of this, investors do not appear to be worried. In fact, a lot of them are keen on seizing the opportunity presented by a 5-10% decrease in the market. Even though the immediate trend is in decline, there is not much trading activity happening and the market's instability is relatively calm. The overall economic information, aside from China, such as the recently published Consumer Price Index (CPI) report, indicates that the market is likely to have a smooth landing.

Nevertheless, worries are surfacing within the technology industry. The QQQ, an exchange-traded fund tracking the Nasdaq 100 index, and Nvidia, both of which showed impressive performance throughout the year, have now dipped below their 50-day moving averages. Microsoft, despite reaping significant profits from its investment in OpenAI, the company behind ChatGPT, has also encountered a decline in its stock value.

Eric Johnston from Cantor Fitzgerald states that the decline in tech stocks is a wake-up call for a market that was highly optimistic about the potential of artificial intelligence (AI) technology. Although the technology sector's weaknesses have been balanced out by the robust performance of healthcare, energy, and pharmaceuticals, the increasing yields bring potential risks for the market. These higher yields signify economic recovery but can be particularly challenging for tech companies.

Moreover, the general attitude towards the market is optimistic, with numerous investors showing a preference for buying stocks in anticipation of price increases. This has led to an increase in long-term investments. Nevertheless, there remains a lack of excitement for the other segments of the market at their current prices. In particular, individual investors are choosing the security of earning 5% returns on their 1-year Treasuries instead of joining the market's upward trend. As a result, a substantial amount of retail cash has entered the market, leading to intense competition for stocks. This is evident from the staggering $6.7 trillion held in money market funds.

Despite the current apprehension surrounding the stock market's downturn, experts maintain that the patterns observed thus far do not indicate a continuous decline throughout August. They foresee a possible bottoming out in the market in the coming days, but are eagerly awaiting additional evidence to confirm this.