To The Moon

We saw how inflation cooled slightly in February even as the pace of price growth remained well above the Federal Reserve's goal ahead when the central bank meet for their policy meeting next week.

On Wednesday (13 Mar), the Labor Department said that the consumer price index (CPI), which is a broad measure of how much everyday goods like gasoline, groceries and rent cost have increased by 0.2% in February as compared to January 2025, while it rose 2.8% on the annual basis.

Both the annual and monthly increases in headline inflation were cooler than the economists expectations.

Tech-Drive Market Rally Trigger How Investors Should Approach

After a cool CPI (Consumer Price Index) report triggers a tech-driven market rally, I believe that it is important that investors should strategically navigate the market to capitalize on gains while managing risks.

In this article I will be sharing on the factors that I would be assessing and the technical analysis I am looking at to determine whether is this cooling inflation a one-off event or will this lead to a broader trend.

The favorable jobs report on Tuesday (11 Mar) where the U.S. economy added 151,000 jobs in February, slightly below consensus expectations of 160,000 but in line with the 12-month average of 168,000. This confirms that the labor market is roughly balanced.

This has managed to give investors some hope that we are not in free fall territory anymore and with the inflation report on Wednesday, I would say that the market has kind of stop bleeding.

Assess the Rally’s Sustainability

CPI Trends: Determine if the cooling inflation is a one-off event or part of a broader trend. Analyze historical data and upcoming economic reports.

The overall jobs report was good and CPI was very decent month over month with 0.2 versus 0.3 and year-over-year we saw 2.8 versus 2.9. For the core we have the year-over-year 3.1 versus 3.2. So we can say that all across the board showed some very decent beats.

Individual Components Of The CPI

Now let us take a look at the breakdown into individual components, we can see that from Sep 24 to Jan 25, there have all upticks, and this is the first downtick that we are seeing in Feb 25,

If we break down into individual component like food, though there is a recent uptick but it is not worse than January 2025. Another important component would be energy, we can see that it is down from January which we saw an uptick of 1% from Dec 24, now it is down to -0.2%.

Another big component I would look at apparel this is what people would usual buy with their paychecks and it is now up 0.6% which is slightly inline with the historical average for apparel.

The biggest one that would remain is shelter which represent 60% of an average american person’s cost of living on month-over-month basis, though this is the component which appear stickiest for inflation but we are seeing a steady trending down for the past year to two years since the peak in March 2023.

At least shelter is coming down despite people are still feeling that the inflation remain elevated. There are other biggest component like the medical care which include prescription drugs and also rent remain sticky for some.

Household earnings have increased last year faster than the rate of information so the purchasing power is gaining. Unless we saw that the average hourly earnings went down below the rate of inflation, then this would have consumer losing their purchasing power at a rate of 4% then that would be quite high.

Fed Policy Outlook: Monitor Federal Reserve communications for hints on future rate decisions. Lower inflation may reduce rate hikes, supporting tech growth stocks.

Rebalance Your Portfolio

Diversify: Reduce overexposure to tech by reallocating profits to defensive sectors (e.g., utilities, healthcare) or cyclical sectors (e.g., industrials) if economic recovery is expected. $Utilities Select Sector SPDR Fund(XLU)$

Valuation Check: Use metrics like P/E ratios to identify overvalued tech stocks. Trim positions in companies with stretched valuations.

Secure Profits and Manage Risk

Take Partial Profits: Sell a portion of high-performing tech holdings to lock in gains while maintaining exposure.

Stop-Loss Orders: Protect against downturns by setting stop-loss levels on remaining positions.

Explore New Opportunities

Sector Rotation: Look for undervalued sectors (e.g., energy, financials) that may benefit from shifting market dynamics. $Financial Select Sector SPDR Fund(XLF)$

Global Markets: Consider international equities, especially in regions with favorable monetary policies or growth potential.

Implement Hedging Strategies

Options: Use put options or inverse ETFs to hedge against potential tech sector volatility. $ProShares UltraPro Short QQQ(SQQQ)$

Diversified Assets: Allocate to bonds or gold as a hedge against market corrections. $SPDR Gold Shares(GLD)$

Monitor Economic Indicators

Upcoming Data: Track employment reports, GDP growth, and retail sales to gauge economic health.

Market Breadth: Ensure the rally is broad-based (not just tech) to confirm market strength.

Focus on Quality and Fundamentals

Strong Balance Sheets: Prioritize tech companies with robust cash flows, low debt, and competitive advantages (e.g., AI leaders, cloud infrastructure firms).

Behavioral Discipline

Avoid FOMO/Panic: Stick to your investment plan. Use dollar-cost averaging if adding new positions to avoid timing mistakes.

Summary

A tech-driven rally fueled by cooling CPI offers opportunities but requires vigilance. Balance profit-taking with strategic diversification, stay informed on macroeconomic trends, and prioritize risk management to navigate potential volatility effectively.

Based on what I have found out from looking at the key components of the CPI, the next thing to look out is Fed FOMC meeting next week, I would think that investors also need to pay attention to the negotiations or bilateral negotiations between the different countries that are affected by the tariffs.

Impact of tariffs onto the consumers will only truly be felt in the economy and on people's pockets within the next 3 to 6 months. Hence it might take a while to actually get that hard data in terms of the tariff impacts now.

Appreciate if you could share your thoughts in the comment section whether you think this rally will be short while we await the hard data which should give us an idea of what the impact tariffs have on these components in the CPI.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.