Markets Nearly Flat Ahead of FOMC Despite Hot CPI Release

“No man ever steps in the same river twice, for it's not the same river and he's not the same man.” ~ Heraclitus

Good evening,

This week, we saw the last two inflation-data releases before the next meeting of the Federal Open Market Committee (FOMC) on Wednesday, March 20. Both came in hot, yet equity markets stayed nearly flat. Our current rally has continued for 20 weeks, but in the view of Fundstrat Head of Research Tom Lee, “While this rally is certainly mature (compared to the 16-19 week duration of the last two rallies), there remains a substantial amount of dry powder to fuel further gains.”

Based on his conversations with clients, Lee believes current sentiment remains skeptical, not bullish enough warrant apprehension of an imminent end to this rally. In his view, the flows are supportive as well: even with positive net equity flows, there remains a record $6.1 trillion in cash on the sidelines. “In our view, a ‘buy the dip’ regime remains,” he said. 

Also supportive of Lee’s continued constructive view of this rally are positive technical signals. As Head of Technical Strategy Mark Newton says, “Uptrends and momentum are intact and positive, and I haven’t seen the warning signs that typically suggest this rally is nearing its end....