Stock Momentum Slams Into a Wall in S&P 500’s Worst CPI Day In Years

The S&P 500 Index blew past a series of troubling markers in its relentless rally to 5,000. Now, after Tuesday’s rout, investors are staring at a potentially long way down before they find support.

Signs of over exuberance are everywhere: The S&P 500's 15-week rally, in which it gained 22% through Monday’s close, pushed the gauge 13% above its 200-day moving average, something that has occurred on just 5% of the trading days this century. Hedge funds’ exposure to money-losing tech firms is hovering near a two-year high. And across the stock market, positioning is stretched and demand for loss protection muted.

The cold water to douse those flames arrived Tuesday morning in the form of data showing inflation remains stickier than expected. The rally that had been predicated on the belief that the central bank’s imminent pivot to interest-rate cuts slammed into reality, as those bets are being frantically rolled back.

“The data put in doubt investors’ optimism that the central bank’s interest-rate cuts are basically a done deal,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance LLC, said by phone. “It reinforced the idea that interest-rate cuts are not coming any time soon. And if that’s the case, all of a sudden the stock-market rally is looking stretched.”

Up in the Air