[Chart courtesy of MarketWatch.com]

1. Moving the markets

The Fed issued some market pleasing remarks early on sending the major indexes higher, with the S&P 500 notching another intra-day record. Fed head Powell uttered the words that traders wanted to hear, namely that they will maintain their easy monetary policies.

Added CNBC:

Powell said in his semiannual testimony before Congress Wednesday that the central bank can wait before it starts to ease its bond purchases despite surging inflation readings. The Fed chair said he still expects inflation to moderate.

Though, hawkish Producer Price inflation (PPI) numbers, showing the index spiraling past expectations, up 1% MoM, rising 7.3% YoY (vs. 6.7% expected), took the starch out of the rally.

As a result, the early euphoria hit a brick wall, causing the markets to reverse and dump into the red. An afternoon rebound ensured a modest close above their respective unchanged lines, except for the Nasdaq, which lost a modest -0.22%.

Sure, we are supposed to believe that inflation is transitory, which I don’t agree with, and today, non-other than powerhouse Blackrock’s Larry Fink said: “I worry about inflation, it’s unlikely to be transitory.”

In terms of winners and losers on today’s roller coaster ride, Small Caps got hammered again (-1.65%) with “value” closing in the red as well, but with a lesser loss (-0.45%).

Bond yields collapsed, giving back yesterday’s gains, which was followed by the US Dollar. That combination gave Gold a reason to rally, and the precious metal added a solid +1.03% and thereby solidified its position above the $1,800 level.

I believe this session was saved by Powell’s dovish announcement which, at least for this day, dominated any inflationary concerns.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early trounce was followed by quick bounce, but upward momentum could not be sustained, and the impact of the inflation report proved to be stronger than some of the positive early earnings results. The three major indexes all closed on the red, albeit by a small percentage.

For sure, the inflation numbers turned out to be hotter-than-expected with the CPI increasing by 5.4% in June from a year ago, which was its fastest increase in 13 years, according to the Labor Department.

The Core CPI, excluding food and energy, leaped 4.5%, its sharpest move since 1991, exceeding its estimate of 3.8%. Adding insult to injury were used car prices, which rocketed higher by an amazing 45% YoY.

Of course, as I expected, word on the street spread that all of this will prove to be temporary. Yeah right!

These numbers overshadowed blowout earnings by big banks and PepsiCo and may keep the markets on a leash for the time being, with bond yields getting hit hard as the 10-year spiked to 1.417%.

The US Dollar Index surged, dropped, and surged again, as volatility rose and Gold whipsawed. The precious metal ended the session with a slight gain and remained above its $1,800 level.

It was a wild day and created a tug-of-war via opinions that favored inflation to be “transitory” vs. those that see it as a “permanent” companion. My bet is on the latter.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite a downside opening, the major indexes regained their upward momentum rather quickly and once climbed above their respective unchanged lines, continued their path to score another winning session.

Support came from positive expectations of the upcoming earnings season, which will start later this week. For sure, some analysts are counting on blockbuster earnings results, but even more important will be the outlook discussion as to what the future might bring.

However, keep in mind, when comparing Q2 earnings of last year with this year, there better be a huge improvement given the pandemic slowdown during 2020. We might see a record growth rate, but it’s a distorted measure due to comparing a now growing economy to one that was in shutdown mode.

We will also have to face important economic data such as key readings on inflation mid-week followed by June retail sales on Friday.

The results were mixed today with value (+0.54%) sprinting ahead of Small Caps (-0.28%), while the Financials (XLF) outperformed the broad indexes with a gain of +0.98%.

As far as the S&P is concerned, some analysts are seeing warnings signs, as breadth severely lags, meaning that only a minority number of stocks are carrying the load to drive the index higher.

Bond yields and the US Dollar went predominantly sideways with not much gained. Gold slipped slightly but managed to hang on to its $1,800 level.

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