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Hope you are all doing well. The major U.S. stock indexes climbed around 2% to 3%, regaining ground they had lost the previous week and then some, with the S&P 500 and the NASDAQ reaching their highest levels in 15 months. The NASDAQ’s gain of more than 3% was its best weekly result in four months. Emmy nominations came out this week, Ted Lasso was nominated 21 times. I have broken down this week’s update using quotes from the show’s title character

I feel like we fell out of the lucky tree and hit every branch on the way down, ended up in a pool of cash and Sour Patch Kids.

Inflation is heading back down, the labor market is strong and the economy is still growing. The Fed seems on the cusp of engineering a soft landing. That optimism fueled the gains this week. A midweek report on U.S. inflation provided great news. The Consumer Price Index (CPI) fell to an annual rate of 3.0% in June, the lowest level since March 2021. The rate has steadily dropped since peaking at a four-decade high of 9.1% in June 2022. A separate report on Thursday showed easing inflationary pressures at the wholesale level as well. Remember that much of this drop in CPI has been driven by a drop in oil prices and it is reporting data from June. So far in July it has been a different story for oil. Oil prices have climbed since hitting a low of $68/barrel on June 27th. On Friday morning the price of U.S. crude reached as high as $77/barrel before settling around $75

You know what the happiest animal on earth is? A goldfish. You know why? It’s got a ten second memory.

A couple of decent reports on inflation and investors have forgotten about all that they were concerned about as recently as last week. The CBOE Volatility Index, an index that tracks investors’ expectations of short-term U.S. stock market volatility, fell about 10% for the week. The index retreated to a level that was slightly above the multi-year low that it reached on June 22nd of this year. Not only are investors expecting less volatility, consumers are expressing more confidence. U.S. consumer sentiment rose to its highest level since September 2021. Rising to a level that was well above most economists’ expectations and reflected a 13% increase from the previous month’s reading. I hate throwing cold water on optimism but we likely are going to have a couple more bouts of volatility over the next few weeks as we go through earnings season and another Fed meeting. Analysts are forecasting that earnings for all companies in the S&P 500 will fall by an average of 7.1% overall.

There’s two buttons I never like to hit: that’s panic and snooze.

Last year it was tempting to hit both the panic button (sell stocks) and the snooze button (stop new investing). As I told you last year your future self would later thank you for not doing that. As you can probably tell I think the market is a little ahead of itself. I could see the rally taking a breather for the rest of the summer as investors do some profit taking. The best thing to do is stay invested and treat dips in the market as opportunities to buy. The longer term outlook for stocks is good. Last year was dominated by two big headwinds: inflation and Federal Reserve rate hikes. Both have now become wind at the market’s back, and we are likely seeing the formation of the next bull market. The run so far has really been on the back of a handful of mega cap tech stocks. The second half I expect the rally becomes broad and a larger number of stocks start gaining. The seven largest S&P 500 companies are producing most of the gains, other parts of the market will eventually pick up steam. I am bullish about the next 6 months but not so much the next 6 weeks. I could see the market pullback in the short term. I think this earnings season despite a strong start this week could end up disappointing and I expect the Fed to raise rates in July and to keep talking about the importance of continuing to fight inflation. Remember that CPI is not the gauge the Fed focuses on. They look at core inflation (excluding food and energy) and that’s at 4.8% well above the Fed’s 2% target.

If you’d like to speak about your investments or your plan, my calendar link is below and you can schedule a phone or zoom appointment at any time.