The Numbers Don't Lie (But Everyone Else Does)
Let me get this straight. The Dow rockets 617 points in one day to 46,108, the Nasdaq logs a perfect week of record closes with a 2% gain, and somehow the consensus narrative is that we're positioned for a "soft landing" courtesy of our benevolent Fed overlords.
CPI jumped 0.4% in August after a 0.2% July print. That's double the monthly increase, friends. But apparently math works differently when you're managing $60 trillion in global equity valuations. Annual inflation hit 2.9%, with core CPI at 3.1% — still comfortably above the Fed's sacred 2% target — and yet bond markets are pricing in rate cuts like Powell's got a magic wand instead of a dual mandate.
Here's what actually happened this week while everyone was celebrating: Real money fled bonds. Bonds fell as consumer data did little to alter rate cut bets. Translation: the market has decided that inflation data doesn't matter anymore. Only Fed policy matters. Only the next fix matters.
Traders drove stocks higher and bond yields lower as "unexpected inflation decline reinforced speculation the Federal Reserve will resume cutting interest rates." Except there was no unexpected inflation decline. There was a 0.4% monthly spike that everybody decided to ignore because it doesn't fit the script.
The script goes like this: Powell cuts rates in September because employment looks shaky and inflation is "transitory" (remember that word?). Markets rally because cheap money flows back into risk assets. Small caps outperform because they're more sensitive to rate changes. Everyone wins.
Except the numbers. The numbers keep insisting that prices are rising faster than anyone wants to admit. Core inflation at 3.1% is still above the Fed's 2% target, with sticky service costs showing no signs of surrender. But who cares about sticky service costs when GameStop is trading 4% higher on Wednesday for absolutely no reason?
You want to know what's really happening? We've created a market that functions entirely on Fed policy expectations rather than economic fundamentals. About four-fifths of the CPI and PPI numbers feed into the Fed's preferred inflation gauge, but somehow those numbers have become secondary to what traders think Powell will do next Tuesday.
This is financial nihilism dressed up as sophisticated monetary policy. We've got all three major averages hitting record levels while the underlying economy sends mixed signals at best. Employment is softening. Inflation is accelerating. Consumer spending is propped up by credit cards and fantasy.
But sure, let's celebrate because the Dow gained 617 points in one session. Let's pretend that the Nasdaq's perfect week of record closes reflects some kind of economic strength rather than algorithmic momentum chasing and retail FOMO.
The real story isn't in the headlines about all-time highs. It's in the data points everyone's choosing to ignore. The index for all items less food and energy increased 0.3% in August — that's core inflation running at an annualized 3.6% pace. But apparently we're supposed to be excited about rate cuts because employment trends look concerning.
Here's a radical thought: maybe employment is softening because businesses can't afford to hire at current wage levels while dealing with persistent inflation in everything from commercial rent to supply chain costs. Maybe the economy is telling us something that Wall Street doesn't want to hear.
Instead, we get algorithmic buying programs triggered by Fed speculation and retail investors chasing momentum because their money market funds might yield 4% instead of 5% next month. We get bond yields falling on "unexpected inflation decline" that didn't actually happen.
The market has become a Fed policy derivative. Nothing else matters. Corporate earnings? Secondary. Economic data? Noise. Global geopolitics? Priced in.
What happens when Powell finally cuts rates and discovers that inflation doesn't magically disappear? What happens when those rate cuts fail to generate the economic growth that justifies current equity valuations?
We'll find out soon enough. But for now, enjoy the ride to 46,000 on the Dow while core inflation sits at 3.1% and everyone pretends this makes sense.
The numbers don't lie. Everything else is performance art.