Headline CPI rose just 0.1% month-over-month and core CPI 0.2%, taking some pressure off the Fed to raise rates. But inflation remains sticky amid easier lending standards, stronger loan growth, and a growing money supply. Meanwhile, oil prices remain well below this year’s peak, with progressively less impact on financial markets, while bond yields continue to grind higher. Is a return to low and stable inflation really in the cards?
Key Takeaways
1 . Headline CPI rose 0.1% m/m and 3.4% y/y (core CPI rose +0.2 and 2.5%), taking some pressure off the Fed to raise rates. (The Fed would like to see monthly readings of 0.2% or lower to avoid hiking rates.)
2 . However, inflation remains sticky in part because banks are easing lending standards, loan growth has increased, and money supply is increasing.
3 . The rise in Treasury yields is a function of strong economic growth, elevated inflationary pressures, and increased debt issuance.
4 . The fact that sentiment is holding up despite the uncertainty created by the Iran war confirms that the U.S. economy remains more resilient than expected.
5 . Despite stocks rising nearly 15% YTD, earnings are so strong that the P/E of the market has fallen from 22x to a more tolerable 20x.
6 . While financials lagged early in the year, they have improved markedly in the last couple of months. Many banks are making all-time highs (it is rare that stocks decline when banks are on the new high list).
7 . While IPOs have been few and far between, additional (secondary) offerings are setting records.
8 . Single-stock volatility (dispersion) remains high, while index volatility remains low - an odd combination.
9 . The valuation premium of the U.S. versus the rest of the world (now 22% premium) is the lowest in six years, thanks in large part to explosive U.S. earnings growth (2Q26 earnings growth for the S&P 500 is 28%, ROW 14%).
10 . The election aside, both political parties are moving to the left on economic issues - a form of economic populism (e.g., price controls, lower drug prices, higher minimum wage, cap or credit card interest rates, increased taxes on corporations and billionaires).
Conclusion
The impact of changes in oil prices on financial markets has recently diminished. This mostly reflects mounting signs that the global economy has stayed resilient in the face of the energy shock. It also, however, partly reflects investors' increasing expectation that a bad outcome will not occur. The positive economic and asset-price inflation backdrop will likely continue until bond investors realize that a return to low and stable inflation is not in the cards.
Source: Bob Doll, CFA, PM/CIO/CEO Crossmark Investments
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.
Sincerely,
Fortem Financial
(760) 206-8500
team@fortemfin.com
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