Folks, it often feels like politics dominate market commentary...
Just about every recent market discussion has focused on tariff talks and the budget-reconciliation bill.
Meanwhile, the angle that the mainstream media pushes is constantly changing...
Some days, it's good. Other days, it's bad. But I keep coming back to the same conclusion...
We're living through a great time to own stocks.
Despite the dip yesterday, the major indexes are still near all-time highs. The S&P 500 Index is up a remarkable 29% from its April low. And the tech-heavy Nasdaq 100 Index has soared 37% since then.
Put simply, U.S. stocks have been showing momentum recently. And what's likely on the horizon for interest rates plays a role here...
Despite Summer Volatility, Stocks Have More Upside Ahead
Now, the "smart money" on Wall Street expects interest-rate cuts in the months ahead. If the Federal Reserve cuts rates, it will act as a further tailwind for many stocks...
Lower rates will help expand profit margins. Companies will have access to cheaper loans. Both of those things could continue to boost stocks into the end of the year.
To be clear, the Fed didn't make any moves at its most recent meeting in July. But the central bank remains "data dependent" for making decisions.
An important part of that data is the consumer price index ("CPI")...
The U.S. Bureau of Labor Statistics released its latest CPI update last week. The headline number rose 0.2% on a month-over-month basis. That move met analysts' expectations.
Meanwhile, the annualized CPI number came in below expectations. Forecasts called for a 2.8% year-over-year ("YOY") move. But the data showed an actual YOY rise of 2.7%.
Core CPI is another important piece of data. This inflation metric strips out food and energy.
That's because food and energy prices can be extremely volatile. Things like weather, global supply-chain disruptions, and world events can cause these prices to move around a lot.
In other words, core CPI provides a smoother curve of inflation.
Core CPI came in at 3.1% in the most recent report. That's higher than analysts expected.
For the Fed, delaying rate cuts due to that data alone seems like a smart move so far.
But of course, it's not just about CPI...
The Fed's decision involves all sorts of other factors – like tariffs. They're expected to filter down into the prices we pay for apparel, footwear, household furnishings, and more.
In the end, my message is simple...
Keep in mind that the summer months typically come with lower liquidity. So any moves in stock prices – both positive and negative – can be exaggerated.
Sometimes, that brings unwelcome volatility.
So don't get carried away as an investor. Make sure you always take a careful approach. Never risk more than you can afford to lose. And keep an eye on your stop losses.
But volatility aside, I'm "bullish." You should be too.
Stocks have been soaring recently. And there's a lot of opportunity in the market.
No matter what the news says, no matter what the political issue of the day is... stocks have room to run higher from here. And an interest-rate cut will help power that move.
Good investing,
Pete Carmasino
