Welcome to my latest video presentation, for Tuesday, April 23. The article below is a condensed transcript; my video contains additional details and several charts.

The main U.S. stock market indices bounced back Monday from the drubbing they took last week. But it’s clear that market sentiment has shifted. Can the rally survive? Let’s look at the data for clues.

Hotter-than-expected inflation readings for the first three months of this year have caused Federal Reserve officials to make hawkish pronouncements, dashing hopes that we’ll get three interest rate cuts this year. Wall Street is now betting on only one rate cut, and it won’t be as early as June, as originally hoped.

This higher-for-longer narrative has been a bitter pill for investors to swallow. The CBOE Volatility Index (VIX), aka “fear index,” has been rising and getting closer to 20, a bearish threshold that indicates growing stress and anxiety in the markets. We’re in for an extended period of volatility.

During the recent pullback, the segments that got hit the worst were rate-sensitive and growth-oriented investments. The Russell 2000, “Magnificent Seven” mega-cap technology stocks, and the tech-heavy NASDAQ took the biggest hits.

The small-cap Russell 2000, as measured by the Vanguard Russell 2000 Index Fund ETF (VTWO), has fallen below its 20- and 50-day moving averages, which denotes downward momentum. Small-cap stocks will be in big trouble, if the Russell 2000 breaks below its 200-day moving average.

Likewise, the S&P 500, as measured by the benchmark SPDR S&P 500 ETF (SPY), has fallen below its 20- and 50-day moving averages. Keep an eye on the 200-day moving average; if the S&P 500 continues falling and breaches that level the rally will be in danger.

The main culprit for this change of momentum is the steady climb of U.S. Treasury yields since inflation data started spooking investors and making the Fed circumspect about cutting rates. Bond yields and stocks tend to move in opposite directions. Unless the benchmark 30-year U.S. Treasury yield (TNX) stops surging and reverses direction, stocks will continue to be under pressure.

In a counterintuitive trend, the rise in crude oil prices and commodities has moderated, defying expectations (see my video for charts). Geopolitical strife in the Middle East has pulled back from an apocalyptic brink, causing traders to heave a sigh of relief…for now. The passage of aid for Ukraine in Congress also has put overseas challenges in a more favorable light.

Traders are more worried about energy demand destruction, caused by economic deceleration, than they are about strife-induced supply disruptions. The production curbs of OPEC+ have not pushed up oil prices as much as the cartel had hoped.

Will the equity rally continue, amid these ominous crosscurrents? I think so. Corporate earnings are solid, jobs growth is strong, consumers are still spending, and the Fed will almost certainly cut rates this year, albeit on a delayed basis and fewer times than originally thought.

As the International Monetary Fund’s latest projections show for the global economy, the U.S. is in the vanguard of growth among advanced economies, with year-over-year gross domestic product growth expected to reach 2.1% in 2024.

The upshot: Stick to your investment plan. Panic is never a good strategy. This stock market had gotten frothy and a period of consolidation was overdue. Use pullbacks as opportunities to buy quality stocks at better prices.

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John Persinos is the editorial director of Investing Daily.

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