Daily Fundamental Analysis: Global stocks under pressure following hot inflation reading from the US
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- U.S. indices extended gains despite Moody’s U.S. credit downgrade, signaling strong risk appetite.
- Inflation data showed mild improvement, easing pressure on the Fed but leaving core CPI stubbornly high.
- Low volatility is fueling trend continuation — but macro risks remain under the surface.
Since the start of May, U.S. stock markets have climbed steadily, with the Dow Jones (US30) printing fresh yearly highs and both the Nasdaq 100 and S&P 500 marching toward key resistance zones. While inflation data gave bulls something to cheer, the rally was tested by a major headline: Moody’s downgraded the U.S. credit outlook, citing deepening fiscal imbalances.
Still, the market barely flinched. Earnings have been firm, the Fed remains neutral, and market fears are subdued. For now, the uptrend remains intact — but risks are still on the table.
Inflation Softens Slightly, But Core Remains Sticky
Inflation in April cooled modestly, giving traders a reason to extend risk exposure. However, core CPI remains stuck at 2.8% YoY, signaling that underlying pressures still linger. The real surprise came from the Producer Price Index (PPI), which fell sharply — a possible early signal of future disinflation.
| Indicator | Actual | Forecast | Previous |
|---|---|---|---|
| Core CPI YoY | 2.8% | 2.8% | 2.8% |
| Headline CPI YoY | 2.3% | 2.4% | 2.4% |
| Core CPI MoM | +0.2% | +0.3% | +0.1% |
| Headline CPI MoM | +0.2% | +0.3% | -0.1% |
| PPI MoM | -0.5% | +0.2% | 0.0% |
- Helped extend the rally in growth stocks and tech-heavy indices
- Supported bullish sentiment across risk assets
- Pushed Fed rate cut bets closer to September
The inflation trend is moving in the right direction, but not fast enough for the Fed to act — giving the market breathing room, not a full green light.
Fed Tone: Neutral, Data-Dependent, Market-Friendly
The Fed is staying on the sidelines, even as the data slowly improves. Powell emphasized caution, and other officials echoed the "not there yet" stance. Markets interpreted this as a soft backstop: no hike risk, no cut promise.
The Fed remains a stabilizing force — not bullish, not bearish, and that’s exactly what this market wants.
Moody’s Downgrade: A Long-Term Risk Markets Are Ignoring (for Now)
Moody’s cut its outlook on U.S. sovereign credit, warning of rising debt-to-GDP and the inability of lawmakers to manage long-term deficits. The downgrade was flagged by some as a "slow-moving crisis" — but equities didn't blink.
Market Impact:
- 10-year yields held steady, signaling bond traders aren’t panicking
- Dow and S&P rose as dip buyers saw the news as noise
- Morgan Stanley's Mike Wilson: “Use dips as buying opportunities”
Moody’s downgrade is a structural concern — not a trigger. But it adds weight to future volatility risk if inflation flares back up.
VIX: Low, Stable, and Risk-On
Despite Moody’s downgrade and sticky inflation, the VIX volatility index has stayed quiet and now trading below the 20 levels, allowing a risk-on sentiment on the U.S. market. Complacency or confidence? Either way, it's fueling low-stress breakouts across major indices.
- Supports momentum trading and trend strategies
- Keeps institutional hedging light, pushing equities higher
- May mask underlying fragility — surprises could hit hard
As fears dissipates, confidence steps in, traders and investors, even institutions, are seeing this as an upside opportunity.
For forecast reference, check out my previous forecast:
Dow Jones (US30)
Previous
Current
After hitting the Fair Value Gap on the daily, Dow Jones is still trending nicely and creating new highs.
Upside is still intact unless we a structure shift, taking out the immediate lows and creating lower highs for bearish scenario.
Nasdaq 100
Previous
Current
Compared to Dow Jones, Nasdaq has a stronger momentum with no signs of slowing down, yet. If Nasdaq pulls back, we could see a potential upside reaction at the Daily FVG resting at 20197.50 - 20766.90 level.
Unless new lows have been formed, with an obvious formation of a swing low, Nasdaq will continue to strengthen to the upside.
S&P 500
Previous
Current
Same momentum also exhibits on S&P as it continues to trend to the upside.
Bullish FVG is still intact giving us more upside ahead. Unless broken down or invalidated, we’d like to see more highs on the horizon.
Final Word: Ride With Precision, Prepare With Caution
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
—
George Soros
This is a market still willing to climb the wall of worry — but it’s walking a thinner line. Inflation may be easing, but core remains sticky. Moody’s downgrade didn’t break the trend, but it has cast a shadow over long-term credibility. The charts still favor bulls — but only if the fundamentals don't betray them first.
Stay nimble. Ride strength. Respect reversals.
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