Headline CPI arrived - just as desired, ~3% annualized rate and dropping. In my view the Fed should prolong the pause regardless of periodic tough talk.
 

Freepik

I note the layered ability of markets to consolidate and advance thereafter, with a qualifier being geopolitics and of course some seasonal complacency that's likely to mesh with alternating rallies and shakeouts 'soon', but not a debacle.

I have argued all year and late last year that the October S&P low was the low and evolved as an 'inverse Head & Shoulders bottom', that would be rough (because of heavy negative sentiment that incredibly still prevails among most strategists, while most 'actual investors' look to buy dips and achieve growth).

At no time did we advocate shorting, to the contrary we warned of the pitfalls of excessive bearishness, within harmony of the outlined roller-coaster action. So even though a number of stocks have under-performed ideal expectations, a few have done very well (especially entrenched big-caps) with at least one homerun (AEHR) that is the gift we're optimistic keeps on giving. A sprinkling of 'bets' in the form of previously decimated small-caps with interesting plans or business models remain somewhere between back-and-front burners.

Definitely most investors would be better off taking advice from their 'personal trainers' at the gym than from many Wall Street strategists, and I actually use that as a contrary indicator (they're all excited about 'crypto' again, so I'm not, but some of those guys are pretty sharp and have made money speculating).

Amid all this we have the 'special rebalancing' ongoing in the Nasdaq / NDX mega-caps, so that's part of the condition I anticipated remaining favorable for 'breadth' to continue decent or improving, which is essential for a stable or for that matter higher S&P, because besides disinflation and broadening-out, little attractiveness exists for new buyers (differentiated from holders) in big-caps.

We were in a rolling recession last year, a rolling bifurcated expansion going on and probably going forward, with a split-personality likely from the FOMC at the upcoming meeting (not unanimity, but hawkish talk with no tightening). They won't say 'mission accomplished', though in my view they have after my warning going back two years, that they were way too late in backing-off the necessary liquidity injections (and stimulus), by failing realistic comprehension of what was going on. Now we have the 'Era of AI', and they don't get it either.

I probably need to mention growing Russian instability / strategic dislocations, going beyond the Wagner Group issue. Then today, after a missile strike on a HQ of Russia's 58th Army occupiers takes out more Russian troops, Popov, the General in-charge complained to Moscow and was immediately fired. He submitted a critical diatribe which brought up the same issues purportedly in the past month by Pregozin, though this is 'not' Wagner Group.

General Popov also wrote that Ukrainian artillery & missile strikes are causing significant casualties to the occupiers near the nuclear plant. Watching this for sure, and also will see where the FBI's (not secret) revelations about Chinese Communist Party cells operating in American companies goes. I think we all presumed some percentage of engineers educated here stay loyal to China. It is a political hot potato and sad for those who genuine want to flourish here (a bit reminiscent of the 'red bating' days of the 1950's, but probably more likely).

In-sum: 

The Fed needs to stop as I said before they paused last time. Now we do have things to ponder, but those would be of short-term variety not a huge Nationwide Credit Crunch, which otherwise the Fed endangers (borderline up to now) creating. To wit: they'd risk sacrificing the patient in order to save it.

Back to stocks, recently I also mentioned earnings might lift a bit (productivity a contributing factor), hence it would suggest better guidance in areas where stock prices are low needing more help. In the case of 'already expensive' stocks, it might not help directly, but becomes essential to remotely justify big-cap multiple and valuation levels. So far so good, but something will trigger a bit of at least short-term reversion (maybe not to the 'mean') fairly soon. I'm in the camp thinking it will likely be geopolitical than economic, but we'll see.

I do think most CEO's will keep guidance somewhat conservative (low bar) so that it's easier to beat estimates in this year's 2nd half. A lot of companies did secondary offerings in the year's 2nd Quarter, and stocks took it decently. It's a sign that such CEO's (if they have integrity and align their interests with the shareholders, which not all seem to do at times) .. such CEO's want to make it not too difficult to reach those estimates, then later talk-up 2024 a bit.

Overall.. inflation pressures are cooling, segments of the economy are more split in a sense (Beige -Tan- Book reinforces that), and lots of managers are still 'off-sides', and that's how you get the market upside.

There is not yet a reason for the Fed to cut, and of course we're likely to hear 'higher for longer', but not a hike. They won't declare 'Mission Accomplished', but also will breathe easier since (we think) they don't intend economic harm.

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