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Markets are always full of surprises, but today was a real rollercoaster. September 11th, 2024, brought us a higher-than-expected CPI report, which many assumed would be a bearish signal, followed by some sharp market reactions tied to the previous night’s political debate. Let’s break down what happened, why it mattered, and what lessons traders can take away from this whirlwind of a day.
CPI Numbers: Higher Than Expected
Today, the big event started with the release of the Consumer Price Index (CPI) numbers. While many were expecting inflation to show a more significant drop—especially given the recent declines in commodity prices like oil and food—the CPI came in higher than anticipated. This higher inflation data was seen as bearish for the market, meaning investors expected the stock market to drop.
Now, it wasn’t just the CPI number itself that caught people off guard. Traders had been paying attention to "whisper numbers," which are unofficial forecasts that often circulate before official reports. These whisper numbers were even lower than the already conservative official expectations. So, when the CPI data didn’t live up to those lowered expectations, it was a double disappointment for traders who were hoping for a bullish signal from falling inflation.
Market Reaction: A Bearish Start
As you might expect, this disappointing CPI news caused stocks to drop at the open. The market’s first reaction was typical—investors sold off positions, fearing that the higher inflation numbers would lead to more aggressive moves by the Federal Reserve, such as raising interest rates. Higher rates can slow down economic growth, making stocks less attractive.
But then, something interesting happened.
Rebound: A Fierce Market Comeback
Despite all the bad news and a shaky start, the market rebounded in a big way. By the time the day ended, stocks had made a fierce recovery, with some indexes even closing near their highs. This type of sharp reversal—when bad news doesn’t lead to a sustained sell-off—is known as a “news failure.” Essentially, the market said, "Yes, the news is bad, but we’re not going to let that bring us down."
Lesson 1: Don’t Sell Into the Hole
One of the key lessons from today is the importance of not selling into the hole—meaning, don’t sell your positions just because the market is reacting negatively to bad news. Selling into a panic can often result in locking in losses at the worst possible time. As today’s rebound showed, sometimes what looks like bad news in the short term can be followed by a significant recovery.
As the saying goes, "Don’t trade the news, trade the reaction." It’s tempting to jump into the market based on initial headlines, but as today proved, that can be a costly mistake.
Political Debate Fallout: A Surprising Factor in Market Moves
In addition to the CPI data, today’s market was also influenced by the fallout from last night’s political debate. The betting markets indicated a significant boost in favour of Kamala Harris following the debate. While political outcomes may not seem directly tied to daily market movements, investors and traders do pay attention to how policy changes could impact the economy.
Interestingly, the shift in Harris’s odds was seen as bearish for the market, at least initially. Perhaps it had to do with uncertainty around potential policy changes or the perception of economic risks under different political administrations. Either way, the combination of bad CPI data and debate fallout made for a tough start to the trading day.
Lesson 2: Bias in Trading Can Cost You
Bias is one of the biggest traps for traders. Take the example of the debate. If you were personally rooting for one candidate over another, it might have coloured your judgment. You might’ve been convinced that your favoured candidate won the debate, even if the betting markets told a different story.
In trading, you can’t let your personal opinions or biases get in the way. You might think, "There’s no way this stock is going up—it’s a terrible company!" But the market doesn’t care about your opinion. If the market says the stock is going up, it’s going up. Period.
Today’s debate outcome and market reaction is a perfect example of why traders need to stay objective. Whether you love or hate a political figure, your personal feelings shouldn’t affect how you interpret market signals. Let the data and market action guide you—not your biases.
Energy Sector: Defying the Odds
Another curious element today was the performance of the energy sector. Even though we got some pretty negative news on energy—specifically a bearish inventory report—energy stocks managed to rally by the end of the day. In fact, they rebounded even before the broader stock market.
This was another case of “news failure.” Despite a gloomy inventory report, energy stocks pushed higher. This kind of price action tells you that the market is shrugging off bad news, which can be a signal to go long. If you’re trading energy stocks, being long against today’s lows could be a solid strategy.
Lesson 3: Watch for News Failures
A “news failure” occurs when bad news doesn’t have the expected negative impact on the market. Today gave us two examples of this. Both the broader stock market and the energy sector had reasons to drop based on the news, but instead, they rallied.
News failures are important signals. They can suggest that the market is more resilient than expected, or that traders have already priced in the bad news, leaving room for a surprise rally. If you see a news failure, it might be an opportunity to buy into strength rather than sell into weakness.
Bonds and the Dollar: A Tug of War
While the stock market was going wild, the bond market had its own story to tell. Bonds initially sold off hard after the CPI report, only to rebound later in the day. This bond rally seemed to coincide with the stock market’s initial drop, as investors sought safety in bonds. But as stocks bounced back, bonds sold off again, closing lower for the day.
The U.S. dollar had a similarly choppy day. The yen had bullish news overnight, but as the dollar strengthened throughout the day, the yen weakened again. By the close, the yen had reversed course, showing that the day’s market action was full of back-and-forth moves across asset classes.
Final Thoughts: Stay Nimble, Avoid Bias
Today’s market action was a great reminder that markets can be unpredictable and difficult to navigate, especially on days with big news events. Whether it's CPI numbers, political debates, or unexpected moves in sectors like energy, traders need to stay nimble and avoid letting bias cloud their judgment.
If there’s one key takeaway from today, it’s this: let the market confirm your ideas before you act. Don't rush to sell on bad news, and don’t let personal opinions about politics or policies dictate your trades. The market will tell you what to do—if you're willing to listen.
Stay patient, stay objective, and keep learning from the market. That’s the path to long-term success in trading.
Disclaimer:
The information provided in this article is for general informational purposes only. It is not intended to be financial advice and should not be construed as such. Always consult with a qualified financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages that may result from the use of this information.