Closing Thoughts for the Week

The theme of the past week could be “wait and see”. The markets could be waiting until after the election in a week and a half to really start re-establishing positions. One group that’s still stuck in a range is small-caps. There's the possibility that the BoJ could be thinking about a yen intervention, although it seems pretty unlikely at this point. Get ready for a big week of tech earnings.

U.S. stocks posted another winning week, but it marked the return of cyclical and defensive sectors once again. Risk asset prices are still enjoying the current Goldilocks period - healthy economic growth and a global central bank monetary easing cycle. We could add a solid start to the Q3 earnings season to the mix. I think that inflation remains worth watching. A Chinese stimulus package could be an important factor in ensuring a soft landing outcome, but optimism that this will happen has almost certainly become a little more muted in recent weeks.

One inflation report won’t change the trajectory of the markets or the Fed’s plans for the next 12 months, but it does serve as a reminder that the soft landing narrative isn’t locked in yet. The markets have been rallying for a while now on the belief that the Fed will keep easing into an already healthy economic environment. The markets may soon get a lesson that there are consequences to getting too dovish at the wrong time.