Week Ahead on Wall Street (SPY) (QQQ): Inflation and bond market yields hold the keys to this rally

• S&P (SPY) closes up over 4% on the week.
• Nasdaq (QQQ) closed with a gain of 4.5% versus a week ago.
• Dollar loses its grip on power as Yen and Euro rally.

A huge week in data terms. The Fed pushed rates higher by 75 basis points and everyone cheered. Equity markets rallied sharply, a curious statement but there you go. We did note that the previous 75 basis point hike in June was met with a sharp sell-off so why the difference this time? Well as we often say the market decides what it wants to do and then shapes the narrative around that outcome. We were told the Fed had turned all dovish because the market wanted and needed to rally. That was the path of least resistance and maximum pain to investors. The Fed merely abandoned guidance it didn't really get all lovey-dovey. 

US GDP then came and added to the dovishness. Again more bad news, the US is in recession, but the equity market immediately begins to rally on this so-called bad news. Why? Because it wanted to. Bond yields falling helped high-risk sectors move higher and from there the only hurdle left was earnings. But Apple and Amazon both held up their end of the bargain and so here we are at the end of the week some 5% higher. Right or wrong, you decide. Currently, the market is pricing in a very optimistic setup in our view. Inflation falling from nearly 9% to 3% in 18 months is unprecedented and quite frankly highly unlikely in our view. We are not alone in our view and have some good company!