The market is showing continued signs of improvement for the time being. All major averages are trading above their short and intermediate term trend lines but below their long term trend lines. CPI numbers just came out and the inflation numbers were better than expected. The likelihood that we have already seen peak inflation has just improved. The major averages are consequently rallying.
The conundrum is whether we can have a deep high employment recession or do the high relative employment levels imply a shallow recession. US Non-Farm Payrolls more than doubled the estimate.
US Unemployment Rate moved down to 3.5% in July
For the first time in a long time, corporate earnings misses have been met with buying. And last week Fed comments were largely hawkish yet the market ignored this and continued to slowly march upward.
I have also noticed an increase in M&A activity. Institutions of this sort that pursue acquisitions typically do this when they feel somewhat optimistic about the future. Just more anecdotal evidence that maybe things aren’t as bad as the media may make it out to be.
And average US gas prices have a $3 handle now instead of a $4 handle.
Lumber has fallen to a one year low and Steel prices have fallen sharply.
Las Vegas is enjoying record high performance for their casinos and hotels.
Finally, some more food for thought. Ned Davis Research runs an S&P 500 Cycle forecast composite. It incorporates seasonal, presidential and decennial cycles. It is forecasting a year end rally to close the year up. We shall see how prescient this may be.