A 'growth scare' is what shook markets a bit early Friday; before the S&P shaking it off because we're avoiding a deeper recession (which is behind, not ahead - and debatable as to whether it was 'technical' or real), and while there are risks and concerns (geopolitical not just financial); it's very normal to have higher rates baked-in, as they are. This is not a simple bearish S&P rally; but it is tentative; stretched and conditional on some other favorable things like an impressive CPI read next week; and also progress towards peace or stability.

The point is wages are higher but if we grow and inflation comes down; well it will be enough for companies to generate reasonable 2023 earnings growth. I emphasize this as part of 'why' the market has been relatively stable; inflation is coming down; the 'softish' (not soft but neither hard) landing is evolving thus far; and the slowdown in the rate of Funds increase by the Fed may be ample.

Yesterday I mentioned that politicians won't acknowledge the reality of hiking interest rates to get 'out of emergency' stances; and normalize business rates. One member noticed that and responded 'yes, restore the business cycle', not so much the 'financial' (or you might call it 'political') cycles we'd experienced.

Nobody wants to add much risk yet; seasonally there's 'Summer Dog Days' of course; but handling that would indeed be well received as prognostication of better times. Of course the behavior of China around Taiwan ,and Russia too, well, they remain potential spoilers which can impact the better patterns we'd correctly looked for both in commodity and Oil markets, and got recently.

In sum: Friday turned-out to be a fluctuating but generally stable session and that's great. The morning sell-off recovered and managed to finish in neutral.

At the moment the resilient market should attempt to hold, barring news. The CPI will help spur a further rise of S&P, 'if' it comes in opposite of Jobs data; and affirms the fading of the pace of inflation over the last few weeks. Sure it will be an irony if the Covid and War-spiked inflation turn out to be 'transitory' to use the much abused word; but the 'pace' of inflation can unwind and that's the short-term favorable argument if we get a rapid (rather than mild) unwind in the CPI; which should do some; but more since the last data collected; as a cursory glance suggests after 6 weeks of retail Gasoline price decline now.

Good news is bad news and the inverse .. . sort of petered-out with a benign reaction to the 'hot' Jobs number on Friday; though it's not exactly as robust as first-blush suggests. Market reaction was sort of neutral and that's positive.

We won't know how the economy holds up in the face of significant tightening beyond say another 75 basis points (Goldman thinks 50 bp is sufficient next). I realize people are spending more money and construction is heavy; travel as well. So while that makes it hard to perceive that we had or have any sort of recession; it's still a bifurcated economy and yes those with resources are, in a sense, holding up the economy (and somewhat supportive of inflation).

The optimistic view (and we sort of embrace it) is that we can thread the Fed's needle (softish but not soft landing); and peak inflation without tanking sectors in a broad sense; though certainly the challenges exist for a broader majority.

Energy coming down; and transport costs as well as commodity prices, in our view do contribute to softening the blow of the prior projected Oil increase that I thought would complete with the thrust to 120/bbl; and drop into the 90's/80's and it has done both; not extreme moves of any sort as some anticipated. So I don't know the duration or depth of retrenching; I do think decoupling occurs both in the economy and for segments of the society (sorry; but just visibility).

What we see now, in the sort of L-shaped recovery, is the 'softish' landing that almost seems invisible. The market resilience supports the idea; however one more thought intrudes. That's my view that stocks (the big Index or ETF plays) are benefiting from the 'war in Europe' and 'tension over Taiwan', which tends to bring as much money as can escape into the Dollar and financial assets in this Country that include stocks.

Bottom line: earnings were not so bad; expectations are lower but not awful; Oil has edged down as expected, along with food and other commodities for the most part. And this is impressive in the face of the overall high demand.

The Fed is in the 'driver's seat', and we may not get a handle on inflation from a macro perspective. My view remains that they'll never 'claw-back' wages or generally higher prices, which is why I referred to lowering inflation's 'pace'; of course that is not going back to disinflation; just inflation rates most people do have the capacity to adjust to. On the other hand it can be socially disruptive.

Companies with high free cash-flow yield are generally focused on; but that's not a panacea ... the real interest has focused on Semiconductors, Oils and of course a sprinkling of speculative stocks that are trying to show signs of life. I know the Fed wants to quash inflation; and that's the main (and tricky) issue of the moment. But in any case a slower pace of inflation and elongation of a Fed process of hiking rates is what will likely happen... dragging it all out.

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Market Briefing For Thursday, Aug. 4
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Market Briefing For Tuesday, Aug. 2