Everything was cruising along for the market again today until someone typed “what happens when we pause hiring” into their Google search engine. The stock came off highs thanks to that unconfirmed headline (though closed flat) and added to a growing list of companies potentially pausing hiring. Any recessionary signs are unhelpful in this environment and markets dropped, but ultimately held onto positive territory (4th up day out of 5 for the Nasdaq).

For the last few weeks, investors have been devouring every economic datapoint and comment from Fed speakers, in an effort to apply a probability to future Fed moves. But the calendar has shifted into the pre-meeting quiet period and participants can focus on earnings, at least for the next week. Concerns going into this earnings season were lingering supply chain tightness and inflation impacts, and companies ability to handle those.

The weather has been pretty delightful here on the east coast, but as one leaves work to grab lunch and feels as if their walking into a bowl of soup, it’s safe to say the dog days of summer have officially arrived. The UK apparently having more problems than most… Yes it’s hot outside – summer’s gonna summer. But the office provides a decent alternative if you’re unable to cool down at the beach and a traditionally slow time of year for markets has earnings season to maintain interest.

Markets for the last month have been trading relatively sideways. Investors have come to terms that the US economy may be heading towards a recession, and that makes every datapoint that more important. As the next FOMC meeting is only 7.5 trading sessions away, the debate of 50, 75 or 100bps continues to rage. This week alone has seen a shift towards 100bps (75bps still is the favorite) as CPI and PPI were higher than expected.

As the 150th British Open kicks off at St. Andrews today, it brought back memories of the good fortune my friends and I had a few years back when we secured a tee time at the Old Course. You don’t know nerves on a golf course until you’ve teed off in front of a massive crowed, even at 6:30am, while sporting a double-digit handicap. Maybe that first drive went OB but our cigarette-rolling/drinking whiskey out of a flask caddie soon calmed our collective nerves.

It finally happened – and oh man it was not what we were expecting. CPI this morning came in hotter than expected, at a whopping 9.1% YoY vs estimates of 8.8% – that is the largest gain since 1981. The print sent futures lower as investors were reminded that the Fed has been behind the curve, and while we’ve seen input costs going lower as of late, that was too little, too late. Investors are now pricing in only 25% probability of a 75bp hike – there is now 75% probability of a 100bp hike (up from 0% chance of a 100bp hike a week ago), as investors ponder if the Fed will join the Bank of Canada in hiking by 100bps at their next meeting. On the bright side, while the Core number was higher than expected, it still showed deceleration from 6% to 5.9% on the YoY rate. CPI also showed that gasoline prices were up 11.2% MoM, but with prices having marginally fallen in recent weeks there is hope for a softer number come next print.

Inflationàcorporate balance sheets à the Fed. All intertwined and all coming soon to shed light on a market that’s been on unsteady legs once again. Caution was the name of the game, nobody was feeling too brave ahead of CPI tomorrow morning, especially if one had done so last month. The S&P traded lower into the print back in June and a hotter than expected figure resulted another aggressive sell-off, so no reason to be a hero today. Especially considering the number is expected to be higher than last month, with a 9 handle being whispered. And even THAT may not be the end of it, potentially making a mockery of the phrase “peak inflation.”

Patience is key – Investors were stuck waiting today, both for the wave of important economic data later in the week & for the beginning of earnings season. This week brings CPI & University of Michigan data, with CPI expected to come in at 8.8% YoY, which would be a fresh four decade high. Despite expectations of a further MoM/YoY CPI increase, University of Michigan expectations are flat for both Sentiment and Current Conditions. Investors are also interested in seeing how earnings go – some sell side analysts believe that corporations are resilient enough to pass on higher costs to consumers, while some  strategists are not convinced that is the case. Earnings kick off this week, with JPM & MS Thursday pre-market.

Today was always going to be about NFPs, especially on the heels of four consecutive green days for the S&P. The higher than expected print sent futures sharply lower, as investors nibbled through the wider implications for the market. Yes it means the economy is still in decent shape. It also means that the Fed has a clear path to continuing to tighten/hike rates, which in turn means that companies will have to deal with it. Investors are now also pricing in a 98% probability of a 75bp hike in June, with the residual 2% no longer pricing in a 50bp hike, but rather a 100bp one.

Yup, that’s four days in a row for those of you counting. 2022 has been a tough year for markets, so accomplishing four green days consecutively is a win. By the way, this was last done in March for the S&P and Nasdaq. With little new news to change the short term positive momentum, traders stuck to this week’s themes, buying growth/ mega tech. The Growth versus Value trade has outperformed by 4% since last Friday (for the S&P), and a few big tech names have closed above their 50 day moving averages (Apple, Amazon, Google and Microsoft). While the broader indexes remain below their 50 days, those levels are within striking distance. Today’s session had most sectors higher.