Futures are off sharply on a very stagflationary offering of economic data. Q1 GDP rose at only 1.6% versus expectations of 2.4%, while core PCE prices rose 3.7% against expectations of 3.4%. The PCE index itself is due out tomorrow.

Meanwhile, the Labor Department reported that unemployment claims for the week ended April 20 came in at 207,000 versus 215,000 expected and the 212,000-222,000 which have been reported in the past 6 weeks.

Weaker than expected economic data, combined with stronger than expected inflation and employment, places the FOMC in a difficult position and a market which has been counting on lower interest rates downright bearish.

Despite a strong showing in March, the SPX is right back where it was the last time we wrote about stagflation in February [see: Stagflation Fears Renewed.]

About the only silver lining in our charts is the 10Y, which has reached our 4.738 target several weeks earlier than expected. The resistance at this level could make a difference for stocks.

continued for members…

If the 10Y can hold these levels and if PCE comes in on target tomorrow, then ES has a shot at holding the SMA100.
But, as of now, futures have fallen back out of both channels.

VIX’s recent breakdown is still fresh in our minds, but note that it never did reach our 21.8 target – still an attractive level from a charting standpoint. And VX futures show a nice bounce off the red TL.Currencies are showing a repeat of yesterday, with EURUSD off slightly and USDJPY up slightly. Oil and gas are both very slightly weaker, their current impact irrelevant in light of the economic headlines.

About the only thing that scares Wall Street more than the Fed not lowering rates is the prospect of higher interest rates. So, holding 4.75% is extremely important for the bulls.

The decline from 5% in October 2023 was made possible only by the decline in oil/gas. The drop in interest rates, in turn, fueled the equity rally. At this point, another big drop in oil/gas seems unlikely – leaving the equity market without an apparent catalyst for higher or even level prices.

Stay frosty…