Is the Stock Market Really Done Falling? Don't Get Your Hopes Up

Stocks, gold, and bonds rebounded sharply after a brutal market liquidation, but analysts warn this may be a temporary retest rather than a reversal, with Federal Reserve rate hike odds dropping from near-certainty to 60/40. Softer core inflation data suggests demand destruction rather than cooling prices, complicating the Fed’s policy response as core services inflation remains sticky above 2%." "article": "US markets saw a sharp rebound on Thursday after a brutal sell-off earlier in the week, with the S&P 500 retesting its recent breakdown level, gold reversing most of its prior losses, and Treasury bond yields falling. The rally, however, appears more like a temporary retracement than a sustained reversal, according to market analysts. The odds of a December Federal Reserve rate hike dropped from near-certainty on Monday to roughly 60/40, reflecting easing expectations amid softer inflation data. May’s US Producer Price Index (PPI) showed headline gains driven by energy prices, but core wholesale inflation rose just 0.4% month-over-month—below expectations—while year-over-year growth held steady at 4.9%. The data suggests demand destruction rather than cooling inflation, as margins on automobiles and auto parts were squeezed hardest, while fuel and lubricant sellers maintained the fattest profit margins. Wholesalers cut prices on big-ticket, energy-dependent goods to sustain demand, signaling potential weakness ahead. Earlier consumer price data reinforced this trend: core goods prices fell, but only due to a drop in used car and truck prices, indicating consumers are cutting back on expensive, fuel-dependent purchases. Meanwhile, core services inflation—led by transportation and warehousing—rose above 2% for the second straight month, remaining sticky despite the decline in goods prices. This creates a dilemma for the Fed, as persistent services inflation clashes with weakening consumer demand. The Fed’s policy options are now constrained, as a potential hold or easing due to collapsing demand could signal an impending recession rather than a green light for risk assets. Bond market breakeven inflation rates are diverging lower, reflecting growing uncertainty. Crude oil prices remained largely unchanged despite the White House canceling threatened strikes on Iran in exchange for a memorandum of understanding, suggesting the war-trade premium in oil is not yet unwinding. The market’s recovery may offer temporary relief, but the underlying economic pressures—demand destruction, sticky services inflation, and Fed policy uncertainty—remain unresolved. Investors should remain cautious, as the rebound could be short-lived without meaningful improvements in inflation trends or consumer resilience.