To The Moon

Wall Street got the inflation report it wanted.

But don't confuse "better" with "problem solved." July CPI came in softer, stocks moved higher, and investors breathed a sigh of relief.

The bigger question is: Did inflation finally break… or are we simply getting a temporary pause?

THE CPI REPORT GAVE BULLS WHAT THEY NEEDED

Inflation

July headline CPI rose just 0.1% month over month, bringing annual inflation down to: 3.4% vs. 3.5% in June.

Core CPI also cooled: 2.5% YoY vs. 2.6% previously.

That's exactly the kind of report equity investors wanted. And the market responded:

• Nasdaq: +0.54%

• $S&P 500(.SPX)$ : +0.26% The S&P 500 finished just below its recent record.

• Dow Jones: -0.04%

AI STOCKS ADDED ANOTHER BOOST

Inflation wasn't the only catalyst. AI-related names delivered some serious earnings surprises.

$SUPER MICRO COMPUTER INC(SMCI)$ : +19.0% $Lumentum(LITE)$ also rallied after delivering results that exceeded expectations. $NVIDIA(NVDA)$

The AI trade isn't dead.

Investors are still willing to aggressively reward companies that can demonstrate real AI-driven growth. And that matters because the market had recently started questioning whether massive AI capital spending would actually translate into profits.

BUT HERE'S THE PROBLEM: THE FED STILL HAS WORK TO DO

Yesterday's CPI report makes a September rate hike less likely. But it doesn't eliminate the possibility.

Why? Because inflation is still running well above the Fed's 2% target.

And several categories are still showing meaningful price increases.

1. Medical services.

2. Used vehicles.

3. Software and computer equipment.

4. Apparel.

5. Both goods and services prices increased in July.

So while the headline number looks encouraging…Inflationary pressure hasn't disappeared.

AND THEN THERE'S OIL...

This may be the biggest wildcard. The Strait of Hormuz remains closed, while tensions with Iran continue. That creates a serious risk for energy prices.

If oil remains elevated, or moves significantly higher, it could eventually feed back into inflation. And suddenly today's "cooling inflation" narrative could look very different. That's why investors shouldn't celebrate too early.

THE FED STILL HAS TWO BIG TESTS AHEAD

The market doesn't get to stop worrying about inflation yet.

Two reports could be decisive:

1. August 26 PCE Inflation

2. September 11 August CPI

And the second report arrives only days before the Fed's September 15–16 meeting. That means the next few weeks could be critical for interest-rate expectations.

💥 TODAY'S PPI COULD BE THE NEXT CLUE

The inflation story isn't finished this week. PPI Producer Price Index

Consensus expects: Headline PPI: +4.9% YoY. Core PPI: +4.2% YoY.

Both would represent a decline from June. But here's what traders will be watching:

Is inflation genuinely broadening lower, or are higher input costs building underneath the surface?

AND THERE'S ANOTHER PROBLEM: WHAT REPLACES THE 10-YEAR TREASURY?

For decades, the 10-year U.S. Treasury was the ultimate portfolio diversifier.

It offered:

1. Liquidity

2. Relatively low volatility

3. Positive real returns

4. Often negative correlation with equities

But that relationship has become less reliable. Investors may increasingly need to look elsewhere for diversification: Energy, Base metals, Infrastructure, Private credit.

That could have major implications for portfolio construction in the years ahead.

THE BIG QUESTION

Is CPI the beginning of a sustained disinflation trend… or just a temporary pause before inflation reaccelerates?

1. If inflation falls toward 2% while AI earnings remain strong, how much higher can stocks go?

2. Are investors underestimating the risk of another inflation shock from energy and geopolitics?

Bullish on the CPI? Bearish? Somewhere in between?

Drop your view below.

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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.

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