S&P 500-hovering below all-time highs

14 May

US stock indices were a tad firmer this morning following on from yesterday’s mixed session. The main takeaway from Monday’s trade was that the Dow finished a touch lower, and so its run of eight successive positive sessions came to an end. Otherwise, the S&P 500 and NASDAQ 100 continue to consolidate, trading sideways and within spitting distance of their all-time closing highs from the end of March. The mid-cap, domestically-focused Russell 2000 is also consolidating, although it remains around 16% below its own record high from November 2021. It has been a featureless few days as far as the major US indices are concerned. But that’s not to say there hasn’t been some excitement in equity markets. GameStop, that foundation of all things ‘meme’, is back in the headlines. The stock started to rally earlier this month before it jumped on Friday to hit a 10-month high above $20. Then, ‘Roaring Kitty’, the original Reddit contributor who triggered the interest in GameStop, reemerged over the weekend after a long period of silence. GameStop reacted violently on Monday, gapping higher and nearly doubling, before pulling back. It is sharply higher again this morning, as is its fellow meme stock AMC Entertainment. It’s always a laugh to see moves like this, but there’s a serious side too. Such volatility can wipe out investors as quickly as it makes them fortunes. Could this reemergence of meme stock madness signal that reasoned judgement has once again been chucked out of the window, and equity traders are back in casino mode? Hopefully not. Of more importance now are the two US inflation updates this week, with the Producer Prices Index (PPI) later today, and the Consumer Price Index (CPI) tomorrow. These releases, particularly CPI, have the potential to trigger some violent moves across all financial markets. That in turn could set the stage for stock market behaviour over the coming summer months. That may sound a bit dramatic considering that the markets don’t expect any changes in Fed Funds until the third or fourth quarter, but sentiment is everything. If there’s no improvement in this week’s inflation numbers, then investors may feel it’s a good time to cut their exposure and come back in early September after Jackson Hole.