Stock market indexes rose Tuesday after the February CPI showed hot short-term but improving long-term inflationary pressures. A United Airlines profit warning sent shock waves through the air transportation sector. A major rating agency warned about growing weakness in the U.S. banking system.
The mostly in-line consumer price index eased stock market jitters, encouraging bottom fishers to scoop up big losers, and favored bounce plays. However, uncertainty about the current state of the U.S. banking system should keep most investors on the sidelines, and it's time to start planning for tough market conditions weeks and months down the road.
Rating agency Moody's downgraded the U.S. banking system to "Negative" overnight, reflecting "the rapid deterioration in the operating environment following deposit runs." The firm also warned the "rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in U.S. banks' asset-liability management (ALM) exacerbated by rapidly rising interest rates."
Rating agencies, including Moody's, were pummeled with criticism after the 2008 financial collapse for not flagging dangerously-high risk in derivative instruments such as credit default swaps (CDS).
The Dow Jones Industrial Average surged 1.5% while the S&P 500 added 2.0% at midday. The Nasdaq jumped 2.3%. The Russell 2000 small-cap index attracted the most buying interest, rallying 3.3% at this hour.
NYSE and Nasdaq volume fell sharply compared to midday Monday levels. It would be more bullish if Tuesday's upside attracted much greater participation.
The Nasdaq and S&P 500 bounced back into new resistance at their 200-day moving averages. Testing like this is common after breakdowns. At the same time, the Russell 2000 is lagging after a long period of superior performance, held down by worries about pressure on startup funding that impacts growth.
Stock Market Shakes Off Hot CPI Report
The February consumer price index (CPI) rose 0.4% in February, meeting consensus views, while the core inflation number hit 0.5%, above 0.4% expectations. However, year-over-year numbers fell to 6.0% from 6.4% for the main reading, while the core fell to 5.5% from 5.6%. The market took its cues from improving longer term trends, at least in the first hour.
Shelter costs drove the upside, with the steep 0.8% surge dismissed by economists who believe a new downtrend is in place. Service inflation continued to rise, confirming stubborn inflationary pressure that's exerting a big economic footprint.
The stock market whipsawed after the news but buyers took control ahead of the opening bell and held gains through midday Tuesday. Even so, risk remains highly elevated because the banking crisis could signal long-term stress on world financial markets.
Crude oil fell 1% to $74 per barrel. The futures contract is testing December lows. Asian markets were mixed while European bourses followed the U.S. stock market, closing higher.
The 10-year Treasury note yield bounced strongly off the 200-day moving average and a six-week low, trading at 3.62%.
Odds for a 0.25% rate hike at the March meeting surged to 84.9%, according to CME FedWatch.
Bitcoin $35,000?
Bitcoin rallied another 7.4% to a nine-month high at $26,000, lifting three-day gains to around 30%. The vertical rally could signal the start of an uptrend into the May 2022 double-top breakdown near $35,000. As a result, that marks the natural upside target for this energetic bounce.
The ProShares Bitcoin Strategy ETF is the most actively traded Bitcoin-linked ETF, closely tracking the cryptocurrency since inception, according to the provider. The fund invests "primarily in Bitcoin futures contracts" and "does not invest directly in Bitcoin."
Stock Market Today: Airlines Strong Despite Warning
United Airlines warned late Monday about rising labor costs due to a collective bargaining agreement, dropping 7% overnight. UAL shares traded 4.5% lower in the first half. The stock fell more than 13% from its breakout at 53.36, resulting in a sell signal.
Numerous rivals reiterated bullish guidance in the premarket Tuesday, including Delta Air Lines, Southwest Airlines, JetBlue and Alaska Airlines.
The U.S. global jets ETF traded higher by almost 1.0%, despite the warning of its biggest component.
IBD 50 And Leaderboard Highlights
Many IBD 50 stock market leaders bounced strongly as banking crisis headlines receded.
IBD component Arista Networks rallied to an all-time high, ejecting out of the buy zone after remounting the 145.27 buy point last week. The 99 Composite and 98 Earnings-Per-Share ratings highlight the strong credentials of this tech market leader. ANET stock is 3.5% higher at this hour.
Also in the IBD 50, Cadence Design Systems lifted back above the 195.07 buy point, which also marks all-time high territory; 203.06 may provide a fruitful alternate entry.
The tech stock has been testing the buy zone for about a month and has completed a bullish three-weeks-tight pattern. CDNS stock rose 3.1%.
Monolithic Power Systems rallied back above the 21-day line Monday, carving a reversal that could mark the final leg of a cup-with-handle pattern going back to August 2022. MPWR stock popped 2.8% in the first half and traded about 5% below the 530.75 buy point.
Follow Alan Farley on Twitter at @msttrader.
