To The Moon

The U.S. markets suffered a selloff yesterday. Dow was down 3.94%, S&P 500 dropped 4.32% and Nasdaq tanked 5.16%. The most likely cause was the inflation rate didn't decrease as much as expected. The funny thing is that annual change in inflation rate has eased further in August. It peaked in June at 9.1%, fell to 8.5% in July and decreased to 8.3% in August. The trend appears to be coming down. Oil (WTI) price has also went below $90 per barrel, losing about 30% from the peak. Hence, inflation seemed to have peaked but it doesn't mean it will fall to the Fed's target of 2% quickly. Probably this is where mismatched expectations became the problem. S&P 500 gained every single day in the past 4 days leading up to the release of the inflation report. It rallied a total of 5.4% in that 4 days. Investors were expecting lower inflation rate and harbored the hope that the Fed may slow down the rate hikes, giving growth stocks a boost. These expectations probably led to investors buying up stocks in anticipation. Alas, they were disappointed with the degree of decline in inflation rate. The hope for the Fed to be less hawkish was dashed and stocks were dumped quickly leading to the selloff. However, the drop yesterday was huge but did not completely wipe off the prior 4 days of gain. We can say that the market was just returning to normalcy. The selling may continue though. A key level for S&P 500 is the low point in 2022, which is around 3,636. The bear will be strong if the index break below this support.