The June Consumer Price Index figure came in higher than expected on Wednesday, but the market response was very mild and there was just minor selling pressure. This reaction caused optimism among bulls who hope that this is a peak inflation reading and will lead to some market support. The theory is that the worst is already priced into the market and there should be limited downside from here.
The problem with this theory is that inflation isn't the only issue that the economy and the market must deal with. Dealing with the worst inflation in 40 years has many other repercussions, and most of them are negative. The more aggressive the Fed is at eliminating inflation, the greater the likelihood that it will slow economic growth and create a recession.
The bulls hope that with some slowing in commodity inflation the Fed will be ready to pivot away from its hawkishness fairly fast. That is a nice theory, but there are no signs of that occurring. Chances of a full-point interest rate hike at the end of July have increased. Also, bonds have strengthened as worries about a recession continue to build.
This morning starts earnings season with reports from JPMorgan Chase (JPM) and Morgan Stanley (MS) . JPM missed on both the top and bottom lines and had a number of very cautious comments. It made clear that there is tremendous economic uncertainty and management doesn't know how it is going to develop. It also made clear that many of the repercussions of inflation won't be felt for months.
We have an economic mess on our hands and it is naïve to believe that it is going to be resolved or fully discounted very quickly. We don't even know the extent of the problems at this point, so it isn't possible to anticipate the impact.
My best advice is to not try to guess when this market will hit bottom. Don't try to anticipate a turn. Wait for better price action. You do not need to be heavily invested at the bottom in order to do extremely well when the market eventually turns.
We have a poor open on tap here on Thursday morning but we will see if the dip buyers have any interest.