Get while the gettin's good

Bond markets and risk assets rallied on the news. Like recent trade related headlines, it was better than feared. Investors saw a green light for the Fed to cut rates in September. And then producer prices added a twist. Having whistled past consumer inflation data, wholesale prices reintroduced unease about the passthrough effects of tariffs on inflation.

Wholesale inflation in July rose the most in three years, driven by services and companies increasing the price of goods to offset higher import levies. There’s more to come. The bulk of reciprocal tariffs have only just been put in place. Many again being re-prosecuted.

July’s consumer and producer inflation data will provoke revisions to estimates of the Fed’s preferred measure of inflation, the core personal consumption expenditures price index. It will be updated on August 29th. I expect it to rise above June’s 2.8% reading.

The Kansas City Fed’s Jackson Hole Economic Policy Symposium (August 21-23) will certainly garner attention. All eyes on Jay Powell. Fed members had been signaling increased willingness to cut rates in September. Investors want to see if that’s backed away from.

This has been one of the more challenging markets to navigate since the global financial crisis (GFC). Obviously, for very different reasons. Thanks to wobbles of policy support to backstop the financial system, GFC foreshadowed financial market collapse. As banks go, so goes the economy.

Hyperbolic? During the financial crisis, not in the least. Today there’s a bias to fear monger and amplify. Liberation day seemed to offer a risk that rhymed with chaos. It’s why investors reacted the way they did. We’re holding risk reins tight given valuation levels.

Markets looked through recessionist cries because of the underlying strength of the economy. Also, corporate earnings. It helps that investors found a pattern to tariff negotiations. Overreaching, fast-paced, singular in demand, existentially exhausting. For the love of money.

I expect we’ll see inflation rise further. Tariffs may add around 1-1.5% to core inflation. That translates into a ‘high water mark’ of let’s call it 3-3.5%. Inflation expectations may then begin to move lower. Economic growth decelerating towards a +1-1.5% landing point. Treading water.

Equity market pullbacks continue to be bought. Seemingly, everyone wants to buy the next big selloff. The pain trade is for markets to press higher. Bullish sentiment lending support to risk assets. Dip buyers and momentum traders alike getting the credit.

The unsung heroes? Companies buying back their stock. It certainly helps earnings per share estimates. We’ve seen something like a trillion dollars of announced buybacks year to date. We may set a record this year. Big banks and tech leading the charge, as they are with earnings.

The fear of missing out continues to drive sentiment. Earnings are validating lofty valuation levels, both for equity and credit markets. Valuations leave little room for miscalculation, which is a reason not to chase feverishly after markets. The good news? Fundamentals have gotten us here, driven by mega-cap companies. Big tech and banks showcasing exceptionalism.

When investors stop looking down at how far markets have climbed and only look up, it’s worth reflecting on. Markets have run fast and furiously higher. It’s been a spirited ride. As the tariff wars drag on, China needs to be reckoned with. It’s in no one’s interest to see re-escalation.

I’d be happy to see markets pause and digest multiples. Also, to see a broadening of support in sectors that continue to lag tech and financials. I know what I can’t know. That’s an important principle to practice as an investor. Also, in life. Ask the Madigan twins.

Market consolidation seems in order. I don’t know if racing animal spirits will allow for it. The current investor cry? Get while the gettin’s good.

Summer doldrums are setting in. I expect September to come roaring back in, with monetary policy center stage. Should the Fed disappoint, investors may throw a temper tantrum or two in response. Embrace these vestiges of summer.

Barring a market rumble, my next note will be after Labor Day.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 8/14/25.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.