Stocks Pause As Inflation Expectations Slump, A Diverging Tale

January 26, 2021

STOCKS – MSFT, AMD, SBUX, SQ

MACRO – SPY, RINF

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Stocks finished the day mostly lower, with the S&P 500 down around 15 bps. Most of the day was boring again, with the push down coming in the final trading minutes.

It does not come as a surprise that the market is in a holding pattern in the last two days, with the FOMC meeting tomorrow. I don’t expect anything to really come from the Fed tomorrow in terms of policy changes or additional rounds of QE. The only thing I will be listening for will come around timing or color around a taper and potentially any responses Powell makes regarding the equity market; I’m expecting questions to be asked.

Inflation Rates (RINF)

The one noticeable thing is that breakeven inflation rates have pulled back some in recent days, and that is worth exploring. The S&P 500 has largely just followed inflation expectations since last January. A move lower in inflation expectations has led to lower equity prices in the past. We will need to see if these expectations continue to fall and how far equity prices diverge. (Subscriber premium content on SA Marketplace – Yields And Inflation Rate May Be Predicting Lower Equity Markets)

Microsoft (MSFT)

Microsoft is trading higher following a big beat on the top and bottom line. The shares are breaking above their previous highs and could be heading towards $255. (Subscriber premium content on SA Marketplace – Earnings Preview: Microsoft May Jump Follow Quarterly Results)

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Starbucks (SBUX)

Starbucks is falling a little after posting results that didn’t seem so great overall based on some of the top-line numbers I saw. Overall, there is a negative pattern in the stock, with what appears to be a head-and-shoulders pattern, so I expect that shares will continue to struggle.

AMD (AMD)

AMD reported what looked like blowout results and guidance. Still, the stock is trading down a touch. It is somewhat surprising to see, and I’m a little confused by it. As I previously noted, the chart doesn’t look great. The strong results and lack of post-trading movement could signify that the results weren’t good enough. How the stock trades tomorrow will certainly tell us a lot about what happens next. (Subscriber premium content on SA Marketplace – Earnings Preview: AMD)

Square (SQ)

Square is starting to really break down, and I really tried to get more into it today in the chat session. The stock has become highly tied to Bitcoin, and the worse Bitcoin trades, the more of a drag it will be on Square. The stock is breaking the uptrend at $210, and $200 will really be a critical spot for the stock to hold.

Have a good one

Mike

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