Midweek Rendezvous: Cooling Inflation, Boiling Stocks

Stocks once again soared, with both the Nasdaq and S&P 500 printing fresh 52-week highs on the backs of a cooler than expected inflation print.

CPI came in at just 3% in June, and more importantly, core CPI finally showed signs of breaking lower, coming in at 4.8% - the first sub 5% print since late 2021.

Pairing this with last week's softer than expected jobs report, there is increased optimism across markets that the Fed may be nearing its soft landing, a feat that seemed unachievable just six months ago.

But the jobs definitely not done, as markets still anticipate another 25bps in hikes to come.

However, this is still a strong improvement from just three weeks ago, where Fed swaps were pricing in nearly 75bps in hikes to close out 2023.

Labor market conditions are softening and with inflation cooling for the 12th straight month there is reason to believe this arduous rate hike cycle is coming to a close.

This has led many fund managers, and admittedly me, to shift their outlook on equities to more steadfastly bullish.

Goldman's Trade desk indicated that an all time high this year is certainly within the realm of possibilities given how markets have unfolded thus far.

Meanwhile, SoftBank maintained its street high $4800 target on SPX, which would also place the index at an all time high.

As for us at Andy's Angle, we see it like this...

Breadth.

If you've been reading with us, you know this had been our main concern throughout the beginning of the year, that too small of a percentage of stocks were causing the majority of gains in equities.

Well, that has changed recently, with overall markets participating... a more widespread rally.

83% of SPX stocks now trade over their 50 day moving average, signifying that this new push higher is not isolated to a few names, but is being experienced across a broad swath of stocks and sectors.

This is bullish and indicates a healthy market, not being skewed by one name or the other.

While the Nasdaq Composite index is still heavily misproportioned, with six stocks making up 40% of its weighting, even that is set to be corrected as the fund is scheduled to undergo a "special rebalancing" only conducted two times in history to fix this historic imbalance in stock weightings.

Besides breadth and market technicals, it just looks fundamentally bullish.

It is getting harder and harder to develop a true bear case in the market environment.

Inflation is cooling, the labor market is still tight, but not to the point that it is actively impairing price stability, and U.S. economic output has remained resilient.

Recession fears are slowly fading, and while we are not out of the woods yet (you really never can be with 5%+ interest rates and coming out of the worst inflation in decades), there seems to be growing optimism surrounding the U.S. economies near future.

From my experience in markets, things tend to play out how you would least expect, so it's advisable to stay on your toes and make decisions as macro conditions change, but for now its all green lights on equities... and we should take advantage.

With that all being said, we reiterate the fact that for now market conditions are conducive to both value investing and trading, and that is exactly what we have been focused on doing.

Here's and update on our plays to close out this midweek rendezvous...