It's been an excellent year for stock market investors with the S&P 500 (SP500) returning more than 17% thus far and nearly 30% higher from the 2022 lows. The combination of a resilient economy, easing inflation, and strong corporate earnings surprised a lot of very smart people from this time last year. We've been bullish during this run and can make the case that there is more upside ahead.

At the same time, it's the perma-bears that have been caught flat-footed on the wrong side of the narrative. We can look back at several "bear traps" in recent months, where the market was able to climb over the proverbial wall of worry in 2023. Talking points that appeared to signal the start of a big market correction didn't pan out.

We bring this up because we have another one of those big moments coming up. The August CPI report, set to be released on September 13th, will help set the market tone in the market for the rest of the year with implications for the next steps in Fed policy.

Our call is that a favorable inflation reading, particularly on the core side, should be enough to keep the Fed on hold and shut the door on further rate hikes. The setup here is for stocks to regain momentum from the recent dip and ultimately reclaim the recent highs.
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We expect a positive market reaction to the core CPI reaching its lowest level since 2021 since this is the trend the Fed will be paying more attention to, especially at this stage in the cycle. The transmission of the tightening done over the past year is ongoing.