The inflation data this morning did not support Jerome Powell's assertion that tariffs are a new source of inflation.
With that, and given the cracks in the labor market, this environment where fiscal and industrial policy has a foot on the gas pedal, while monetary policy has had a foot on the brake, is about to change.
The market reaction the inflation report was decisive. The S&P 500 and Nasdaq closed on new record highs. And small caps had a huge day.
The Russell closes today just shy of the big 2300 level.
As you can see in the chart below, we've tested this level a few times over the past month and failed. And if you look to the left, this is the level from which things broke down in late February.
That big decline was triggered by a weak University of Michigan report — on "tariff and inflation fears."
This started a 24% correction over about six weeks, which, of course, culminated with the official launch and then pause of tariffs.
So, now we're back to this key technical area. The markets now have clarity (at least, visibility) on policy. Inflation has not reignited. And the trade deal deadline that really matters, with China, has been pushed for another 90 days.
This is a greenlight for this index to return to record highs (8% higher) and beyond.