Stocks Up Sharply, Building On Monday's Gains  Image: Bigstock Stocks closed sharply higher yesterday, building on Monday's gains and extending the rally from last month's lows. While inflation, and therefore interest rates and the economy, remain the chief concerns right now, the recession fears appear to be receding. The sharp pullback we saw over the last several months, especially last month, seemed to be pricing in a recession. But with the jobs market continuing to stay hot, it's hard to make a case for a recession (unemployment is at near 50-year lows), when businesses are clamoring for workers. The Fed has also said they see a strong economy for the rest of the year. In fact, St. Louis Fed President, James Bullard, recently shared those sentiments when he said that he does not see a recession this year or next, and sees the economy growing by 2.5% to 3% this year, with a "pretty good second half," driven by "strong consumption this year." That was echoed in the latest FOMC minutes last week when the Fed acknowledged the strength in the economy, and that they anticipate GDP to 'advance at a solid pace over the remainder of the year.' As for interest rates, while the Fed is committed to combatting inflation, and 50 basis point hikes are expected at the upcoming June and July meetings, Fed Vice Chair, Lael Brainard, hinted at the idea that they could switch back to the more traditional 25 basis point hikes after July. Of course, the Fed's decision will be driven by data. But gladly, we're seeing evidence that inflation may have already peaked. It's still high (40-year highs), but ceasing to go up, and actually starting to tick down is a step in the right direction. The Fed will make an announcement on rates at the conclusion of their next FOMC meeting on Wednesday, 6/15. Also helping the market and the global economy is news that China is starting to ease up on their Covid lockdowns after two painful months. That will help pump up their GDP, but also help in easing supply chain constraints. In other news, yesterday's report on International Trade in Goods and Services, showed our trade deficit shrink more than expected, coming in at -$87.1 billion vs. last month's -$109.8B and the consensus for -$90.2B, on lower Chinese imports. That should further add to our Q2 GDP. We'll get another look at the economy today with MBA Mortgage Applications, and Wholesale Inventories. But the report everybody is really waiting for is Friday's Consumer Price Index, which will show whether inflation continued its recent downtick, or whether it's climbing back up. In the meantime, the markets are rallying nicely from their recent lows, as stocks were grossly oversold if we indeed are not going to see a recession, and instead see another year of growth. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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