The market was caught in a never-ending tug of war
In the long oscillation between fear and confidence that defines market cycles, Friday brought a moment of measured relief: cooling inflation data gave traders reason to believe the Federal Reserve's most aggressive instincts might soften, lifting stock futures toward a fourth consecutive week of gains. The S&P 500, already 15 percent recovered from its June nadir, now stood at the threshold of a symbolic milestone — half its bear market losses reclaimed. Whether this represents genuine turning or merely a pause in a longer reckoning remains the question the market cannot yet answer.
- Inflation came in softer than feared in July — consumer prices rose less than expected, producer prices actually fell — and markets exhaled.
- The probability of a 75-basis-point Fed rate hike in September collapsed to a minority view, with traders now favoring a smaller 50-point move at 63.5% odds.
- Growth stocks, battered all year by rising yields, surged back into favor: Tesla and Amazon each gained premarket, and U.S. growth equities logged their largest weekly inflow since December.
- The S&P 500 is pressing against the 4,231 resistance level — a 50% retracement of bear market losses — where optimists and pessimists are locked in what one strategist called a never-ending tug of war.
- Banks extended their own rally toward a sixth straight winning week, and consumer sentiment data due at 10 a.m. loomed as the next test of whether the recovery has reached ordinary Americans.
Friday morning arrived with the kind of data markets had been waiting months to see. Consumer prices rose more slowly than expected in July; producer prices actually declined. Together, the numbers gave traders permission to recalibrate — to believe the Federal Reserve might ease off its most aggressive rate-hiking posture. Stock futures climbed, pointing toward a fourth straight week of gains for both the S&P 500 and the Nasdaq.
The S&P 500 had already staged a remarkable 15 percent recovery from its mid-June lows, and now it was approaching a technical milestone: a 50 percent retracement of its full bear market decline. The 4,231 level stood as the next hurdle, with the index closing Thursday at 4,207 — close enough to feel the resistance. Adam Sarhan of 50 Park Investments framed it plainly: the market was caught in a tug of war between bulls and bears, each side holding just enough ground to prevent a decisive break either way.
The shift in Fed expectations was the engine beneath everything. Traders moved from pricing a near-certain 75-basis-point September hike to a 63.5 percent probability of a smaller 50-point move. That recalibration sent money flooding back into the growth stocks that had suffered most as yields rose — Tesla and Amazon each gained 0.9 percent premarket, and Bank of America data confirmed $7.1 billion in equity inflows for the week, with U.S. growth stocks recording their biggest weekly haul since December.
Banks joined the advance, with JPMorgan and Goldman Sachs rising toward what would be a sixth consecutive winning week. Rivian added 1.4 percent after beating revenue expectations. By mid-morning premarket, the moves were modest but consistent — the market pressing carefully against the question it cannot yet resolve: whether the worst of the year is genuinely behind it, or whether this recovery, like others before it, will prove to be another false start.
The market opened Friday morning with a familiar rhythm: good news on inflation, and suddenly the calculus around interest rates shifted. Stock futures climbed in early trading, pointing toward a fourth consecutive week of gains for both the S&P 500 and the Nasdaq. The reason was straightforward enough. Consumer prices had risen more slowly than expected in July, and producer prices had actually fallen. These numbers mattered because they gave traders permission to believe the Federal Reserve might not need to keep hammering the economy with massive rate increases.
The S&P 500 had already clawed back 15 percent from its low point in mid-June, a recovery that felt almost improbable after the brutal first half of the year. Now it was approaching a technical milestone—a 50 percent retracement of its bear market losses—with the 4,231 level serving as the next hurdle. The index had closed Thursday at 4,207.27, close enough to taste it. Adam Sarhan, chief executive of 50 Park Investments, offered a sober assessment: the major indices were trading near their May and June highs, which meant those highs were now acting as resistance. The market was caught in what he called a never-ending tug of war between optimists and pessimists, each side pulling just hard enough to keep things from running away.
What had shifted was the probability math around the Fed's next move. Traders were now pricing in a 63.5 percent chance that the central bank would raise rates by 50 basis points in September, down from the 75 basis point increase that had seemed likely just days before. This mattered enormously. Since March, the Fed had already lifted its policy rate by 225 basis points in its effort to cool demand without triggering a wave of layoffs. The question was whether it could thread that needle, and the inflation data suggested maybe it could.
The money was moving back into the kinds of stocks that had been punished all year. Tesla and Amazon, both high-growth technology names that had suffered as rising Treasury yields made their future earnings less valuable, each rose 0.9 percent in premarket trading. This was not a coincidence. Bank of America data showed that investors had bought $7.1 billion in equities during the week ending Wednesday, with U.S. growth stocks recording their largest weekly inflow since December. The rotation back into risk was real.
Banks were having their own moment. JPMorgan Chase and Goldman Sachs were advancing in premarket trading, setting up what would be a sixth straight week of gains for the sector. Meanwhile, Rivian Automotive, the electric-vehicle maker, rose 1.4 percent after reporting second-quarter revenue that beat expectations. By 8:45 a.m. Eastern time, the Dow e-minis were up 137 points, the S&P 500 e-minis up 19 points, and the Nasdaq 100 e-minis up 69.5 points. The moves were modest, but they were consistent. The market was testing whether the worst was truly behind it, or whether this was just another false start in a year full of them. The University of Michigan's consumer sentiment survey, due at 10 a.m., would offer one more data point on whether ordinary Americans believed in the recovery too.
Citas Notables
The major indices are trading near highs going back to May and June and those highs are now serving as near-term resistance. At the same time, you have the never-ending tug of war going on between the bulls and the bears.— Adam Sarhan, chief executive of 50 Park Investments
La Conversación del Hearth Otra perspectiva de la historia
Why does the inflation number matter so much to traders? The Fed is still raising rates either way.
Because it changes the magnitude. A 50 basis point hike is half as painful as 75. If inflation is actually cooling, the Fed can afford to be less aggressive, which means less damage to growth stocks and less pressure on borrowers.
But you said the Fed is still committed to tightening. So what's really changed?
The pace. The market had priced in a scenario where the Fed would keep swinging a sledgehammer. Now traders think it might switch to a hammer. That's the difference between a market that's terrified and one that's cautiously hopeful.
The S&P 500 is up 15 percent from June. That's a big move. Is this sustainable?
It's a recovery, not a reversal. The index is approaching a technical level—4,231—that will tell you a lot. If it breaks through, the bulls have real momentum. If it bounces off, you're back to the tug of war.
What about the money flowing back into growth stocks? Is that smart?
It depends on whether inflation actually stays down. If it does, growth stocks deserve to be worth more. If inflation ticks back up, the Fed goes back to being aggressive, and those stocks get hammered again. The market is betting on the first scenario.