Stocks Rebound—But Don't Get Excited Just Yet. Here's Why Volume Matters.
By Gabriel Salas | March 11th, 2025
Key Points:
Stocks rebounding after recent sell-off, supported by technical signals and improved CPI.
Strong trading volume crucial for sustainable recovery.
February CPI (2.8%) better than expected but still above Fed target (2%).
Forward-looking indicators remain cautious; earnings forecasts and valuations under pressure.
Holding cash may be wise until volumes confirm rebound.
It's Not a Rebound Until Volumes Say It Is
Stocks are bouncing back after painful sell-off, boosted by technical indicators and a slightly better-than-expected February inflation reading (CPI at 2.8%, versus a 2.9% consensus). But before you jump back in, consider this critical detail: volume.
Why Volume Is the Key
Historically, rebounds without strong trading volumes tend to fade quickly. Simply put, price movements need volume support to confirm genuine investor confidence. Without this confirmation, these recoveries often end up being short-lived "dead-cat bounces."
Inflation Cooling, but Don't Celebrate Too Early
Yes, February's CPI is a step in the right direction—but at 2.8%, it’s still above the Fed’s 2% target even if it's slightly better than the 2.9% consensus estimate and down from 3.0% in January. Investors should remain cautious and focus instead on forward-looking economic indicators like investment levels, consumer sentiment, and employment trends. These factors provide a clearer picture of future inflation and economic growth than a single monthly inflation report.
Forward-Looking Indicators Still Signal Caution
Current forward-looking signals suggest caution is warranted. Considering the trend in consumer and business confidence, we believe that the risk of cuts in corporate earnings forecasts, along with continued pressure on valuation multiples is rising. With the S&P500 index still trading above 20x earnings, the market remains expensive—hardly a bargain for investors.
Bottom Line:
Until trading volumes convincingly back the rebound, holding cash might be your smartest move. Better buying opportunities could still be ahead.
