Elliott Wave Options: S&P Worries Inflation Too Hot! … Correction Coming?
Last week’s economic data showed that both consumer and producer inflation is staying higher than expected. That’s a concern for the market, as declining inflation is key for interest rates to come down later in the year.
Meanwhile, markets have fared well in the first few weeks of 2024, with the S&P 500 breaking to a new all-time high over 5,000. That move may not last, as the latest data could mean a pullback is ahead.
If such a pullback does play out in the next few weeks, it will be in line with market seasonality. The back half of February, and most of March, is often a poorly-performing time for stocks, as earnings season winds down.
The headline inflation data can give the market an explanation for this seasonal decline. From a technical perspective, stocks have been trending higher in overbought territory for weeks.
Both of those signal that a small pullback could be a good thing for investors. Those who have missed out on the market’s recent run should get the chance to make additional buys in the coming weeks.
A market correction this time of year is typically in the 5-10 percent range. That should be enough for more volatile positions to see an even steeper drop before they start to turn around and head higher.