/ June 15 / Weekly Preview
-
Monday:
N/A
---
Tuesday:
Building Permits Prel (1.41M exp.)
Housing Starts (1.44M exp.)
---
Wednesday:
Fed Interest Rate Decision (pause expected)
FOMC Economic Projections
Retail Sales MoM (0.5% exp.)
---
Thursday:
Initial Jobless Claims (232K exp.)
---
Friday:
N/A
-
Monday:
N/A
---
Tuesday:
N/A
---
Wednesday:
CarMax Inc
---
Thursday:
Accenture plc
Kroger Company (The)
---
Friday:
N/A
Inflation, Rockets & The Melt-Up
Got a question about the markets, your investments, or a topic you’d like us to discuss in an upcoming article? We read every message and may feature your question in our daily write-ups!
Email: andrei@signal-sigma.com
Follow & DM on X: @signal_sigma
What a week! SpaceX closed the largest ever IPO in history, the Strait of Hormuz is opening, inflation ran hot and the momentum trade is back on! We have a lot to review, but I would like to start with the key catalyst for risk assets going forward — and that remains a question about liquidity and about the future path of monetary policy.
The key variable to Fed decision making is inflation, or more specifically — core inflation. Wednesday’s print showed headline inflation reaccelerating to 4.2% year over year, the fastest since April 2023. Oil set the tone for the week, as stocks plunged Tuesday after President Trump hinted at new strikes, then surged Thursday when he canceled them. Oil fell from roughly $91 early in the week to $84.29 by Friday and $80.22 early Monday morning.
Bond yields tell the full story: instead of spiking on the hot CPI, yields actually decreased, with the 10-yr dropping to 4.45% from 4.55%. While the doom crowd and media commentary focused on the headline number (+4.2% — the hottest reading since April 2023), the bond market shrugged. That’s because beneath the surface there is no broad inflation breakout. Instead, we mostly find the temporary effect of oil prices.
Energy costs rose 3.9% in May and are 23.5% higher than a year ago, with that one category responsible for over 60% of the month’s increase in the all-items index. The strong link between oil prices and May’s inflation reading is expected, reflecting how higher energy costs feed through into the goods and services they affect.
That’s why the Core CPI metric is the one to watch, as it strips out the effect of volatile food and fuel costs precisely because they can be supply constraint. This reading rose just +0.2% on the month, below expectations of +0.3%. Furthermore, core good prices actually fell -0.1%, meaning the tariff pass-through economists were fearing is simply not showing up.
A 4.2% inflation reading largely driven by gasoline is very different from a 4.2% reading propelled by rising wages, rents, and widespread services inflation. Real wages are the tell in this instance. Gasoline-driven inflation acts like a tax on consumers that weakens demand, while broad-based wage and services inflation creates a self-reinforcing spiral that keeps the Fed up at night.
According to FRED data, median wages are not keeping up with inflation, with the latest data point for Q1 2026 printing just +0.8% YoY change (not shown in the chart below due to a glitch).
As such, the pressure on inflation is structurally to the downside, with oil really being just a temporary bump. At a +0.2% monthly pace, core inflation annualizes to roughly the Fed’s target, and the 2.9% year-over-year core rate is the figure that ultimately guides policy.
On Wednesday, the FOMC with Kevin Warsh at the helm decides what to do. Given that both core inflation and inflation expectations are behaving, the Fed will most likely look through the oil crisis it cannot control. Hiking in such a climate would only deepen a demand destruction that’s already dragging down Core CPI on its own.
The bond market already knows this. Bonds are the most liquid and highly informed pool of capital on the planet. Bond market investors are generally specialized in anticipating inflation and economic growth — it’s what their entire livelihood depends on. As such, when bonds and stocks diverge, we’ll always take a signal from the bond market.
The unusual reaction in front of a “hot” inflation print tells us everything we need to know (it wasn’t so hot after all). The 10-year yield slipped to 4.45% from 4.55% over the week, the 2-year fell 12 basis points to 4.05%, and traders continued to almost fully price in a hold at Wednesday’s meeting. This behavior doesn’t suggest the bond market is preparing for a shift to a higher-inflation regime. Instead of cratering, bonds rallied.
TLT fully recovered the late May decline, struggled with technical resistance at $85, then broke out decisively into the end of the week.
With the news that the Strait of Hormuz is opening over the weekend and oil dropping further, we would expect a continuation of the bond market rally.
In conjunction with the successful and hyped Space X IPO (more of a liquidity and risk appetite measure than anything else), lower yields point the way to new highs for the main indices, especially in economically sensitive areas (small caps and non-profitable tech).
Technically speaking, SPY has successfully completed a test of the 50-DMA, though it did not quite “touch” it. The $720 level was probed intraday on Tuesday as well as Wednesday. It held. Then, the market rallied hard into Friday’s close, in what appears to be a textbook support behavior which is keeping the bull market trend intact. Now, momentum has resumed upward, which is the healthiest way for a market to correct.
Resistance stands at $753 (R1), and, if surpassed, fresh new highs would be expected.
Breadth completes the bullish picture. Thursday’s and Friday’s +2.05% surge came on broad participation rather than a narrow handful of megacaps. That is the kind of thrust that tends to mark a low rather than a dead-cat bounce.
Momentum (in the form of the MACD Signal) is yet to turn positive, so another catalyst is expected to be a positive signal later on.
The flash point for the week appears to be the Fed meeting. There is a risk the Fed will lean hawkish and be more aggressive on rate hikes than the market currently expects.
We’ll get to see an updated dot plot and get first remarks from new Chairman Kevin Warsh. We’re especially focused on whether he will view the +4.2% inflation print as energy-driven primarily and be inclined to “look through” it, especially after weekend developments.
Tuesday’s housing starts will help complete the recent growth picture by showing whether residential construction is keeping pace with broader economic activity, while the Bank of Japan’s rate decision serves as a reminder that the yen carry trade remains a live factor whenever global liquidity is repriced.
Markets will watch the BOJ not just for its policy stance but for any signals about future easing or tightening that could shift FX flows and risk-taking.
Thursday is light on headline data but heavy on read-throughs, anchored by Accenture’s report and guidance. Management commentary on AI consulting demand will be especially important. Accenture’s tone can indicate whether enterprise investment in AI services is still accelerating or beginning to cool, with implications for tech capex cycles and service-sector revenues more broadly.
With small caps staging a breakout in terms of relative-to-SPY performance for the past year, we would be inclined to bet on a continuation of this trend going forward — especially good news for models like the Vision strategy.
Investor sentiment finished the week at 54 / 100, below the neutral 60 reading and far from “Extreme Greed” territory at 76+.
This tells us there is ample space to rally in the summer weeks ahead.
Our Trading Strategy (Sigma Portfolio)
We have not traded at all through the last couple of volatile weeks and it’s looking like it was the correct call. We will perform a standard rebalancing this week, but nothing more fancy than that.
The market is working in our favor at the moment, and liquidity conditions look like improving. With the Enterprise strategy running at full risk-on allocation and the buying regime still in place, there is little reason to significantly change positioning at the moment.
However, as the grind higher ensues, we will be taking profits at some point. That point is not now, as there is still “gas in the tank” for a summer melt-up. But that time is drawing closer. The real risk at the moment is a Federal Reserve bent on tightening.
As the year progresses, the supply shock of upcoming huge IPOs (Anthropic, Open AI) will also rattle stock markets. But that is a story for another day. We’ll keep you in the loop with trading in the Sigma Portfolio via email. Have a great week!
Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this blog post. I currently do not own or plan to own any position, long or short, in the securities mentioned.
I am not a financial advisor licensed in the United States. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject to change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this blog post.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this blog post myself, and it expresses my own opinions. I do not have a business relationship with any company whose stock is mentioned in this blog post. The information in this blog post is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.