As I suggested in my last update, the last bastion of inflated assets finally tumbled as oil is down over 20% in the last six weeks. Consumers have noticed the decline in gas prices, although they're still elevated from the Covid levels of 2020. This deflation may sound contrary to the CPI print of 9.1% last week. However, that data point is stale as CPI inputs were collected weeks ago. Expect the next print to show a significant decline in inflation if oil continues its downdraft. The question is how to invest as inflation eases and rates peak.
Two areas of interest now are medium term bonds and stocks that have been decimated. In the bond category, investors can consider 3 to 7 year debt that now pays interest north of 3%. That may sound paltry, but a year ago that debt was yielding less than 1%. There has also been a stealth rally in many stocks over the last two weeks that few have noticed. That may be hard to believe given the tenor, but the Nasdaq is up 5% for the month of July. In my 25 years of investment experience, inflection points occur in markets during periods of both extreme optimism and pessimism. The latter occurred in June as negative sentiment crested. Markets move well before most investors become comfortable with the headlines and that move may well be underway. As always, I appreciate the continued trust and confidence.