Alexander Tapia @alexddtl1: "📈 Market Update & Outlook The..."

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📈 Market Update & Outlook The last few weeks have been quite volatile across markets. Ironically, just a day after my previous post — where I warned that markets were in a vulnerable position and a correction was likely — the S&P 500 dropped nearly 3% from its recent highs. At that time, I mentioned that due to the lack of new economic data amid the government shutdown, the most likely trigger for a correction would be the upcoming CPI release from the BLS. However, Trump unexpectedly took center stage, shaking markets with comments about potential tariffs on China. The following Monday, sentiment quickly reversed after Trump expressed willingness to reach an agreement with Xi, reigniting the so-called “TACO trade.” Although the SPY didn’t fully replicate these swings, volatility remained elevated, with the index testing the 50 day MA — a level it has respected since may. 🧭 Market Narratives in Focus During the selloff, three main narratives drove investor sentiment: 1️⃣ Credit concerns – Anxiety rose after Zion Bancorp reported a $50M fraud-related write-down, Tricolor Holdings went bankrupt, and Western Alliance faced legal challenges. 2️⃣ AI bubble fears – Investors questioned whether sky-high valuations in AI-related stocks were sustainable. 3️⃣ US–China trade uncertainty – Confusion around whether Trump and Xi would meet at the APEC summit added more pressure. These fears have started to fade recently: ✅ Credit health improving: High-yield default rates remain low. Big banks like JPMorgan and Citi reported solid results with declining provisions. Credit stress indicators have also begun to recover, suggesting that many struggling companies may be able to delay potential defaults. ✅ AI fundamentals still strong: Although several AI-related names have corrected more than 20%, earnings from ASML, TSMC, and Intel came in above expectations — evidence that demand for chips and data centers remains strong. While valuations are still elevated, profit growth has caught up, pushing multiples lower and fundamentals higher. ✅ Trade tensions easing: The White House confirmed that Trump and Xi will meet next Thursday, and expectations are high for a “win-win” deal. This suggests that recent aggressive comments were likely part of a negotiation tactic rather than a real escalation. 🔍 All Eyes on Tomorrow’s Inflation Data The market’s next big catalyst is tomorrow’s CPI report, which will heavily influence the Fed’s upcoming decision. Consensus expects headline CPI at 0.4% and core at 0.3%, pushing YoY inflation to around 3.1%. Under that scenario, markets are pricing in a 25 bps rate cut later this month — justified by softer labor data. Even though inflation is expected to tick higher, traders still anticipate two more rate cuts before year-end, meaning an in-line or softer print could spark a rally. However, it’s worth noting that due to the government shutdown, data imputation within the CPI has increased (it reached 36% in August). That could distort tomorrow’s figure and make it less reliable. Meanwhile, data from Cotality shows that single-family rents rose just 1.4% YoY in August — the lowest since the housing bubble. With multifamily rents also cooling, the key shelter component should begin to ease. This suggests the “stickiest” part of inflation may finally be moderating, increasing the odds of a positive market surprise tomorrow. 💼 Positioning & Strategy Over the past few weeks, I kept around 30% of the portfolio in BIL (short-term Treasuries), waiting for a deeper correction. Recently, I’ve started buying the dip in select AI-related names, as I view this pullback as healthy after extended valuations and heightened uncertainty. The AI growth narrative remains intact, supported by strong fundamentals and robust corporate earnings. At the moment, I’m holding about 8% in SPY and cash, which I plan to deploy after the CPI release. If inflation comes in line or below expectations, I expect the market to resume its uptrend through year-end, supported by: ✨ Seasonal tailwinds ✨ The probability that the Fed Will end its QT program next week ✨ A potential US–China trade agreement, and ✨ A strong earnings season so far. ⚡ Volatility = Opportunity Recent volatility is not a threat — it’s an opportunity. Markets that move sharply often present attractive entry points for those with a clear and disciplined strategy. Staying patient and focused allows us to turn noise into opportunity. I’ll continue to monitor macro trends closely to assess when it might be appropriate to rotate into more defensive companies and reduce portfolio risk again. I’m also evaluating hedge positions such as long-duration bonds, gold, and silver as potential diversifiers. In the short term, the market narrative remains constructive for equities, especially after the recent pullback in AI stocks and as the Fear & Greed Index dips into Extreme Fear territory — often a contrarian bullish signal. $SPY (SPDR S&P 500 ETF) $QQQ (Invesco QQQ) $TLT (iShares 20+ Year Treasury Bond ETF ) $VXX (iPath Series B S&P 500 VIX Short-Term FuturesTM ETN)