SUPREME COURT SAVES THE MARKET? 🚨 The "Coordinated" Rally & S&P 500 Warning

Market Analysis Following Inflation Data, GDP, and Supreme Court Tariff Ruling

Key Concepts:

• PCE (Personal Consumption Expenditures) Price Index: A measure of the price changes of personal goods and services, considered a broader and more accurate gauge of inflation than CPI.
• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Stagflation: A situation characterized by slow economic growth and relatively high inflation.
• Head and Shoulders Pattern: A bearish chart pattern indicating a potential reversal of an uptrend.
• Neckline (in chart patterns): The line connecting the lows between the shoulders and the head in a head and shoulders pattern; a break below this line confirms the pattern.
• Gap Fill: A price movement where a gap in price (created by a significant price jump or drop) is subsequently filled by price action.
• Smart Money Stocks: A service/group (mentioned by Gareth Soloway) focused on identifying and trading stocks based on institutional activity.

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1. Economic Data & Initial Market Reaction

This morning’s economic data revealed concerning trends: GDP came in at 1.4%, significantly below the forecasted 2.8%. This weakness is partially attributed to the prior government shutdown, but was still below expectations. Simultaneously, both month-over-month and year-over-year PCE inflation numbers exceeded expectations, registering at approximately 3%. This combination – slowing economic growth coupled with persistent inflation – raises the specter of stagflation. Initially, markets reacted negatively, gapping lower in early trading.

2. Supreme Court Tariff Ruling & Market Reversal

The Supreme Court ruled against certain tariffs, deeming them illegal. This decision triggered a market rally, as the removal of tariffs is perceived as potentially moderating inflation. Gareth Soloway emphasizes that tariffs are inherently inflationary (“tariffs are technically inflationary, they’re taxes”), and their elimination could alleviate upward pressure on prices. However, the logistical complexities of refunding collected tariffs remain unresolved.

3. Inflation Measurement: PCE vs. CPI

Soloway highlights the importance of the PCE price index as a more comprehensive measure of inflation compared to the CPI. He explains that the CPI is heavily weighted towards housing and rent (approximately 30%), meaning declines in these sectors can artificially suppress the overall CPI figure. The PCE, by considering a wider range of data points, provides a more “truthful guide to inflation.” The current PCE data indicates inflation remains around 3%, diminishing the likelihood of near-term Federal Reserve rate cuts.

4. Technical Analysis: S&P 500

The S&P 500 is currently exhibiting a “head and shoulders” pattern, a bearish formation. However, the pattern is not yet confirmed as the neckline (the support level between the shoulders and the head) remains unbroken. A breach of the neckline would signal a potential decline to the 6550-6560 range. The target for this potential decline is calculated by measuring the distance from the head of the pattern to the neckline and projecting that distance downward from the breakout point. Soloway anticipates this breakdown as early as next week, believing the current bounce is short-lived.

5. Broader Market Trends & Potential Targets

Beyond the head and shoulders pattern, Soloway points to a broken trend line suggesting a potential rounding top formation. He identifies two potential target levels for the S&P 500: an initial target around 6550-6560, followed by a deeper target near 6100 by mid-year.

6. NASDAQ Composite Analysis

The NASDAQ Composite mirrors the S&P 500’s pattern, having recently “tagged” a gap fill before reacting to the tariff news. Soloway expects a breakdown from the current level, eventually returning to a previous support level.

7. Dow Jones Industrial Average Assessment

The Dow Jones Industrial Average remains below a key long-term trend line, which previously acted as support. A break below this trend line (approximately 49,300) would likely trigger a significant corrective move, potentially down to the 46,000 level – a 3-4% decline.

8. Individual Stock Analysis

• Microsoft (MSFT): Currently on support, Soloway favors a bounce and is long the stock through his “Smart Money Stocks” service. A break below the support level would necessitate exiting the position.
• Meta (META): Also bouncing, but vulnerable to a breakdown of a longer-term trend line, which would signal further downside.
• Amazon (AMZN): Kissing support and experiencing a bounce, but a break below support could lead to a 10-15-20% decline.
• Nvidia (NVDA): A break below the 172 level would trigger a larger correction to 150.

9. Coordinated Data Release & Perspective

Soloway expresses skepticism about the timing of the economic data release (hotter inflation numbers) and the subsequent Supreme Court ruling, suggesting a potential “coordinated effort” to manage market sentiment. He believes the intention was to present concerning inflation data followed by positive news regarding tariffs to reassure investors and mitigate negative reactions. As he states, “I think we should call a spade a spade and say this was a coordinated effort…”

10. Conclusion

Despite the short-term market rally fueled by the Supreme Court’s tariff ruling, Soloway maintains a bearish outlook. He anticipates further market declines, driven by a slowing economy, persistent inflation, and the potential for breakdowns in key technical patterns. He emphasizes the importance of monitoring critical support and resistance levels across major indices and individual stocks, and remaining prepared for potential downside risk. The overall message is one of cautious optimism tempered by a recognition of underlying economic vulnerabilities.