Dead Cat Bounce?

The stock market had a pretty good day today – Friday, March 14. The S&P 500 had a 100-point gain at one point, led by, well, pretty much everything.

This rally comes after investors reacted to very good inflation numbers from the Consumer Price Index on Wednesday and the Producer Price Index on Thursday, with a sell-off that took the S&P 500 to yet another 2025 low…

Frankly I was a little surprised that solid declines for inflation numbers were met with selling. But that reaction suggests that inflation is no longer the driving force for the stock market.

Yesterday, JP Morgan’s chief economist raised his odds for a U.S. recession in 2025 to 40%. Last week, Goldman Sachs and Morgan Stanley lowered their GDP growth estimates for the year…

I doubt the reasons for these moves come as a surprise. It’s tariffs and the uncertainty they present to businesses. Companies don’t know how to proceed. They don’t know if they should be hiring or firing people. Should they invest or pull back? It’s a stalemate. Growth is stagnating.

So what are traders so excited about that they are pushing stock prices higher today?

It could be that this week’s inflation data, against a backdrop of rising unemployment and slowing growth, means the Fed could cut rates next week, when the FOMC meets…

More likely, today’s enthusiasm is just a dead cat bounce.

The MACD at the bottom of the chart shows that the S&P 500 is more oversold than it has been in over a year. And the index remains well below its 200-day Moving Avewrage (gold line):

SPX 3-14

Bounces like this feel pretty good. Most stocks are up nicely, the tone is optimistic, maybe this is something to build on…

Maybe.

But do not forget: this is how bear markets operate. Bear markets grind investors down with relentless moves lower, even in the face of good news (like inflation data). Bear market rallies are sharp, powerful moves higher that force shorts to cover and entice the perma-bulls…

Then the rug gets pulled out…again.

Look back at today’s glyph on that chart at 5,600. Does it look like much has really changed?

Hope for the Best…

Yesterday, Commerce Secretary Howard Lutnick said a recession would be “worth it” if it meant the president’s policies were put in place. This is dangerous thinking, in my opinion. Not because of the policies themselves, but because of the nature of recessions…

Because you don’t just flip the “on/off” switch on an economy. Economic trends have momentum and they feed on each other. If the Fed had acted with rate hikes when inflation spiked over 3% in spring of 2021, we likely wouldn’t still be talking about inflation…

Instead, 4 years later and it’s still an issue.

If Lutnick thinks that it can invite a recession and then fix it, oh boy, that’s a truly scary thought. Leverage unwinding, falling asset prices, rising defaults, rising unemployment – you start turning over rocks, you’re gonna find something nasty.

And if you remember 2008-9, the lower stock prices went, the more nasty stuff came crawling out from under the rocks.

Now I’m not saying that I think there’s another Great Financial Crisis on the way. My point is simply that inviting a recession is inviting massive uncertainty. And not the kind of uncertainty you get with tariffs.

Anyway…

I very much enjoyed today’s rally. I hope that it marks a real turning point. But I’m still preparing for the worst.

I took some money off the table yesterday and today. I’m keeping any trading activity to very short windows of time, taking profits and cutting losses quickly. There will be time to redeploy cash when the market settles down…

Don’t ignore the fact that gold prices were up today along with stocks. Hammer has been all over the move for precious metals. The coast is not clear, the cat is bouncing.

Cheers,

Briton Ryle
Chief Investment Strategist
Outsider Club

X/Twitter: https://twitter.com/BritonRyle

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