Inflation Cools to 3.5%, Oil Takes It Back, and We Hold

This Week in Context

For four days, the inflation news was good.

June's Consumer Price Index (CPI) fell 0.4%, the biggest monthly drop since April 2020, pulling the annual rate down to 3.5% from May's 4.2%. Core prices, which exclude food and energy, were flat on the month. Markets rallied. The rate hike traders had priced for the Federal Reserve's meeting this month all but vanished.

Then the weekend came. The United States and Iran traded strikes on infrastructure and military targets, Washington extended its blockade to Iranian ports, and a plan to charge tolls on Strait of Hormuz cargo was floated and then swapped for trade deals with Gulf states. Oil, which had done the work of cooling June's inflation, reversed course: Brent crude climbed back near $89 a barrel, a six-week high, up from about $79 the Monday before.

That sequence is the whole story of this week. The improvement was real, and the thing that produced it is already gone. We hold every position for an eleventh straight week.

Macro Landscape

The new Federal Reserve chair spent Tuesday and Wednesday before Congress, and his message was the one we have been positioned for all quarter. Asked about the soft morning CPI print, he told lawmakers that some might look at the data and declare mission accomplished, and that this was not his view.

The data since has backed his caution. June retail sales rose, weekly jobless claims fell to 208,000, a key factory survey jumped, and housing starts surged 19%. An economy that strong does not force rate cuts, and by Monday the 10-year Treasury yield had climbed back near 4.57%.

the print was cool the war repriced the gasoline that cooled it the chair said so under oath

So the July meeting next week is likely a hold, and September is a live argument in both directions. The 40% cash sleeve does not need to win that argument. It pays about 3.8% while everyone else has it.

Sector Spotlight: The Earnings Test Arrives

Under the calm index surface, last week was rough. Chip stocks fell for three straight sessions, handing the S&P 500 a 1.6% weekly loss, its worst in months, while money rotated toward healthcare, staples and financials.

This week decides whether that was a warning or a breather. The biggest technology companies report second-quarter results beginning Wednesday, with chipmakers to follow. Analysts expect S&P 500 earnings to grow more than 20% from a year ago, a seventh straight quarter of double-digit growth.

That expectation is the entire bull case, and it is why we neither add nor trim. If the profits arrive, stocks near records are less expensive than they look. If they disappoint into an oil shock, the selling that started in the chip sector will not stay there. A 35% equity sleeve lets us be wrong in either direction without being hurt badly in either.

Crypto Corner

Bitcoin traded near $64,000 Monday, up about 4% on the week, recovering with risk assets as rate-hike fears eased.

The more interesting move was underneath: Ethereum has outperformed since late June, and the rotation from Bitcoin into the second-largest token is the pattern that has marked early recoveries in past cycles. Our watchlist has tracked exactly this signal for months as a possible tell that the crypto winter is thawing.

one tell is turning the others are not we wait for the set, not the single

Trading volumes remain near cycle lows, the largest corporate holder that turned seller last month has not turned back, and the bounce has not yet proven itself as demand rather than short-covering. We hold the 7% and keep the rule: buyers first, then we add.

Looking Ahead

Two events frame the next two weeks. This week belongs to earnings, with the market's largest companies reporting into a tape that just showed its first crack in months. Next week belongs to the Federal Reserve, whose July 28-29 meeting now carries low odds of a hike but a press conference that will set the tone for September.

Oil sits under both. If the weekend's strikes harden into another blockade summer, June's inflation relief unwinds and the hike debate returns. If Gulf diplomacy reopens the strait, the soft CPI becomes a trend instead of an accident. We do not have to pick. The book is built for stubborn prices, paid to wait, and positioned to let the argument resolve without us.

The allocation is unchanged: 27% VOO, 8% VWO, 13% GLD, 5% SLV, 7% BTC, 40% BIL.