Markets Continue To Struggle With Breadth

Markets were higher last week as the holiday-shortened trading didn't seem to affect investors' appetite for risk.

And yet, concentration at the top of the broad indices is pushing returns higher for the traditional benchmarks, while diversified portfolios lag behind. The good news is that the Fear & Greed Index shows that investors are not all that thrilled with markets. While markets are making all-time-highs, the index is shifting back and forth between Fear and Neutral. Historically, when the S&P 500 Index is up more than 10% the first half of the year, the second half is positive 82% of the time, with an average return of 7%. That doesn't mean a correction is out of the question, however, and would be completely normal.

The inflation numbers are due this week, and the forecast is for a 3rd consecutive month of declines in the CPI on a year-over-year basis.

This would likely cause Fed futures to spike for a rate cut in September. Declining inflation and a drop in interest rates would be a tailwind to consumers who are stretched. The lower-end consumer has definitely been feeling the pinch from higher inflation and stubborn interest rates, as checking and savings have largely been depleted for that demographic. Chairman Powell will testify before the Joint Economic Committee on Tuesday & Wednesday at which time he could give markets a stronger hint on the Fed's September meeting outcome. The focus this week will definitely be on parsing the Fed's words in light of the inflationary data.

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