Hot Inflation Pushes S&P 500 Lower, but Its Bullish Structure Holds

Stocks are falling after hotter-than-expected inflation reversed an otherwise positive start to the morning. Higher yields and firm oil prices are putting pressure on the market, but the broader S&P 500 chart remains bullish. I’m still watching 8,000 as a potential target, provided the index clears resistance and its key support remains intact.

In One Minute

The inflation report has pushed stocks lower while Treasury yields and the dollar move higher. The concern is that inflation is showing up beyond food and energy, making the interest rate outlook more difficult. The S&P 500 remains in its bullish zone, while semiconductor stocks are struggling to rise even on strong earnings. The immediate tests are the S&P 500’s daily resistance at 78.18 and the 10-year yield’s weekly level at 5.6%.

The Context

Headline inflation came in at 3.7% from a year earlier, above the 3.6% forecast, while monthly inflation matched expectations at 0.6%. Core inflation, which excludes food and energy, had been expected at 2.5% annually and 0.2% monthly, but both readings came in one tenth of a percentage point hotter. That tells us the inflation pressure is reaching other parts of the economy rather than staying confined to gasoline and groceries. With oil also elevated, the report raises the possibility that the Federal Reserve may need to increase rates in October or December.

Key Developments

S&P Futures and the S&P 500

S&P futures fell from approximately 78.80 to 78.22 after the report, a roughly 60-point decline that approached 1%. The daily futures candle showed a 5.4% morning decline, although the market had been trading higher before the announcement. That earlier strength means the expected opening loss is smaller than the full move following the inflation release.

The S&P 500 has repeatedly tested resistance around its August 2026 high, briefly moving above it before pulling back and returning for several more tests. Today’s weakness points to another rejection, but the index is still in its bullish zone and hovering just below all-time highs. I need a daily close above 78.18 to support the next leg toward 8,000. That looks less likely this morning, although the closing price is what matters.

The 10 Year Yield and the Dollar

The 10 year yield surged to 5.33% before backing off slightly, challenging the pullback from resistance and last week’s daily and weekly long upper wicks. The weekly signal matters more than the daily one, just as a monthly signal carries more weight than a weekly signal. A weekly close above 5.6% would negate that bearish reversal signal. As long as this week closes below that high, the signal remains intact.

The dollar index, DXY, is approaching 103, with its next resistance at 103.35. A stronger dollar here means strength against a basket of other currencies, not greater purchasing power at the store. Inflation can keep raising domestic prices even while other currencies weaken against the dollar.

Oil and Refiners

Oil remains strong between $95 and $96 a barrel, while Phillips 66 (PSX) and Valero continue to climb. Their RSI readings, which measure the pace of price changes, show how extended these refiners have become, even compared with artificial intelligence stocks. Phillips 66 is approaching ascending channel resistance around $298 to $300, where I’m watching for rejection. Valero is piercing the upper boundary of another parallel channel and looks set to open higher.

A substantial reversal in the refiners would require oil and diesel to weaken, especially the diesel crack spread. That spread measures the difference between the value of refined diesel and the crude oil used to produce it, and it has not narrowed substantially yet. If it does, these stocks have potential downside of 30% from their current levels. Until that condition develops, the strength remains in place.

Gold and Silver

Gold is breaking lower from a bear flag after trying to hold support. A bear flag is a sideways or upward pause after a decline that can lead to another move down. Today’s break still needs confirmation tomorrow, with $3,950 and potentially $3,500 remaining the downside targets.

Silver is down 4% and could confirm its own breakdown. Its next support is around $55 per ounce. Beyond that, the downside target remains $50 to $48 per ounce.

Natural Gas

Natural gas closed above its trend line yesterday, but today’s pullback is testing whether that breakout can hold. The trend line is around $317, and holding it keeps the door open to a continued advance. The near-term upside range is $350 to $360, with potential for more if the breakout is confirmed.

ASML and Semiconductor Earnings

ASML beat revenue and earnings expectations, raised guidance, and discussed customers placing orders extending into 2029 and 2030. The stock initially rose sharply, then faded into slightly negative territory as the broader market weakened. We saw a similar reaction from Micron after its earnings several weeks ago. Strong results are meeting selling pressure, which may reflect large investors reducing oversized semiconductor positions.

ASML remains between support and resistance, so I don’t have a strong directional bias here. A sharp drop into support could offer a buying opportunity, while a move into resistance could offer a short selling opportunity. In the middle of that range, I don’t see a clear advantage, and I’m willing to wait.

Bank of America, Morgan Stanley, and BlackRock

Bank of America (BAC) fell after a $1.2 billion regulatory fine involving shortcomings around potential money laundering activity, then dropped further after missing earnings expectations. American Express received a similar fine last week, but that did not become a major market event for the company. The compliance issue is serious, although I don’t see the fine itself as a major threat to Bank of America’s business given its earnings capacity. The earnings miss is the more immediate pressure on the stock.

Bank of America has pierced $50, bringing support around $49.50 into focus for a potential day trade. That level should offer a technical reaction, but it is not guaranteed. For a swing trade, I would prefer to wait for a further decline toward $45.

Morgan Stanley was initially close to flat after earnings, then weakened with the market. BlackRock initially rose, pulled back as stocks sold off, and remained positive overall. Neither move is large enough to create the kind of emotional reaction that gives me a clear trading advantage. Small moves around unchanged prices leave little reason to act.

Drone Manufacturers

AVAV is testing an ascending trend line extending back to 2022, which also held during the 2025 decline. Yesterday’s return to that line gets my attention alongside the demand argument tied to conflicts involving Saudi Arabia and the Houthis, Iran and the United States, and Ukraine. This is a swing trade idea rather than a day trade, with possible appeal over a longer period because of the role drones play in warfare. The technical and demand arguments support the setup, but they do not guarantee a recovery.

Another drone maker has fallen from $67 in August to below $40 and is now piercing $40 near descending trend line support. That gives it a similar combination of a discounted price, technical support, and a potential demand case. I view both as ideas worth evaluating rather than assuming they will work.

Nasdaq and Market Breadth

My bullish index outlook is mainly focused on the S&P 500 because it includes industrial, cyclical, and dividend-paying businesses alongside technology. Clorox is one example of a beaten down dividend paying name that fits that broader mix. The Nasdaq is much more concentrated in the artificial intelligence trade, so I’m monitoring it separately rather than treating the two indexes as interchangeable.

Digital Assets and Crypto

Bitcoin

Bitcoin is pulling back and repeatedly testing $81 support without producing a strong bounce. Instead, it is moving sideways after the decline, which leaves a bearish pattern and keeps me concerned about a breakdown. As long as $81 holds, I can give it the benefit of the doubt. Repeated support tests without a decisive recovery, however, leave that level vulnerable.

A close below $81 with confirmation would open the door toward $75, with $75.5 also marking the next support if $81 gives way. On the upside, the breakout boundary is $87.2. Those are the two sides of the setup: a confirmed support failure would favor another decline, while a breakout above resistance would improve the chart.

Why It Matters

Higher oil prices and rising yields are a difficult combination for stocks, especially when core inflation also exceeds expectations. Meanwhile, semiconductor earnings show that strong business results alone are not enough to push heavily owned stocks higher. The S&P 500’s broader mix of businesses helps explain why I remain bullish on that index while watching the concentrated artificial intelligence trade more carefully. Gold and Bitcoin also share a technical concern: reaching support without generating a strong recovery.

Key Details

Bull Case

The S&P 500 remains bullish while its key support holds, with a daily close above 78.18 supporting the potential move toward 8,000. Natural gas can continue higher if its trend line retest holds and the breakout confirms. The drone makers offer swing trade setups at technical support, while ASML could become more attractive on a sharp decline into its range support. Bitcoin retains the benefit of the doubt above $81, with $87.2 defining its upside breakout boundary.

Bear Case

Hotter inflation, higher yields, and strong oil prices are putting immediate pressure on stocks, while semiconductor investors continue selling into good news. Gold could move toward $3,950 and potentially $3,500 if its breakdown confirms, and silver’s downside target remains $50 to $48. Bitcoin would face further downside after a confirmed close below $81. Refiners could also face a substantial decline if oil, diesel, and the diesel crack spread weaken enough.

What to Watch Next

I’m watching today’s S&P 500 close against 78.18 and this week’s 10-year yield close against 5.6%. Tomorrow matters for gold’s breakdown confirmation, while silver could confirm its own support failure, and natural gas needs to hold its trend line retest. Bitcoin’s next meaningful move is a breakout above $87.2 or a confirmed close below $81. For individual stocks, the focus stays on Phillips 66 near $298 to $300, Bank of America’s support areas, and the drone makers’ trend line tests.

Bottom Line

Inflation has disrupted the morning, but it has not yet broken the S&P 500’s bullish structure. Higher yields and firm oil remain the immediate pressure points, while strong semiconductor earnings continue to meet selling. Gold and Bitcoin need convincing responses at support rather than more sideways hesitation. I’m staying patient and letting the key closes determine whether these setups hold or break.