Closing Thoughts for the Week

The June CPI report, which showed consumer inflation cooling at a faster than anticipated rate ushered in one of the swiftest market rotations we’ve seen in some time. This was a broadly positive day, just not the one many were probably hoping for. Investors may be nearing the end of paying premium valuations for stocks. We need some more time to see all of this play out.

If the labor market is the one thing holding up the economy at the moment, it might be time to prepare yourself for the fact that it’s beginning to degrade as well. And with that, Powell and the Fed are in a really tough spot. I fear that investors might be about to learn the hard way that the Fed cuts rates because the economy is weakening and that’s not a good thing for stocks.

The markets closely watched Friday’s PCE price index reading and got exactly what they were looking for. What was interesting, however, was the bond market’s response. The fact that large-cap stocks are getting almost all the attention right now is consistent with the belief that the global economy is slowing. It’s a flight to safety response even if it’s not into the traditional risk-off assets, such as Treasuries.