In the last week, the S&P 500 (SPY) lost nearly 5%. This is the worst weekly performance since the middle of June 2022. Chart technicians will cite this comparable performance as a potential inflection point for markets.
Chart readers will assume the market is about to re-test the pre-summer market rally. Charts have limitations. They look at trading action in the past. The market will find its value based on fundamentals. Macroeconomic conditions continue to worsen, presenting major challenges for stock markets.
Last week, the U.S. reported high consumer price index figures. Markets thought that lower oil prices would lower CPI figures. Instead, core components of the index rose. Home and shelter, health care, and food are necessities. The Federal Reserve’s interest rate increases have not yet slowed the price rise in those items. Still, the increase in mortgage rates will send home prices lower.
The central bank’s higher interest rates take time to work their way into the economy. First, high mortgage rates will end the availability of money to overbid for homes. Already, home demand in the U.S. and Canada is weakening. Prices are moderating.
Second, higher lending costs will discourage corporations from acquisitions and overspending.
Wait on the sidelines before adding to the SPY ETF. Risk levels are higher than the reward markets offer.
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