Closing Thoughts for the Week

The July CPI and PPI inflation reports kept investors in a bullish mood for another week. This “stocks up, bonds down, small-caps outperforming” trend looks like a pretty convincing risk-on move. Investors have liked a lot of things they’ve heard over the past few weeks, but this economy is far from out of the woods.

Investors waiting for the Fed’s big dovish pivot are going to have to wait a little longer. The jobs report makes the case for more rate hikes that much stronger. Treasuries reacted about how you would expect by selling off, but stocks were mostly unfazed. Investors appear to be hanging on to their positive sentiment here. One last thing I watched carefully last week was oil prices.

Investors had three big themes to focus on this past week - earnings, the Fed and U.S. GDP. Q2 earnings hasn’t been quite as bad as feared. I can’t see the Fed cutting rates until there’s indisputable evidence that inflation is coming way down. Thursday’s GDP release started a confusing and curious debate about what a recession actually is. I don’t think people should put too much weight into this July rally.