Clean Bill of Health?

Indexes continued their winning streak, as investors reacted to positive inflation data. The Dow, S&P 500 and NASDAQ all climbed approximately 3%, with the S&P 500 reaching the milestone of ‘retracing’ 50% of the losses it suffered since the January peak.

The week was mainly oriented around Consumer Price Index numbers, which came out on Wednesday. As expected, the headline number came in well below last month’s, mainly due to decreases in oil and gasoline prices. ‘Core” CPI, which excludes food and energy, remained steady, and indicates that inflationary pressures remain. Markets viewed the results as extremely positive and soared on the news. Some analysts remain skeptical, pointing out that housing and food prices are still rising far above the Federal Reserve’s long-term inflation target and that further improvement needs to be seen before the Fed can ease any additional rate hikes.

Internationally, Europe continues struggling to sort out their energy woes, leaving their outlook on recession and inflation even more uncertain. China continues to express displeasure at Speaker Nancy Pelosi’s visit to Taiwan, while the west waits to see if China’s war games off the coast of Taiwan will suffice or if further actions are coming. China also continues to lock down cities that see spikes in COVID cases, adding to supply chain uncertainty.

The week ahead will give analysts more information on American consumers. Many major retailers will report earnings which, in additional to telling Wall Street about middle class shopping patterns in the second quarter, will also shed some light on current conditions based on the guidance they provide.

Although we do not know what amount of current economic concerns will become a reality, the optimism of recent weeks has certainly been welcome. Like in Proverbs 15:30, “good news gives health to the bones,” recent positive news has strengthened both markets and the emotions of investors. We aren’t ‘sold’ on the notion that the seemingly improved diagnosis is the first sign of recovery, but we do believe that there are still plenty of opportunities to participate in the market gains that will bolster a portfolio’s long-term health.

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