As the solar eclipse transfixed millions of people last week, stocks were eclipsed by inflation.

The resurgence of inflation has triggered unease in the markets, with stock prices falling and interest rates edging higher. I still anticipate a downward trajectory in inflation, but recent data indicates a stall in the pace of improvement.

The stirring of inflation doesn’t negate the possibility of future rate cuts, but it does add complexity to the Federal Reserve’s decision-making process in the months ahead.

It’s probable that the Fed will implement fewer rate cuts than previously anticipated, opting to wait for clearer signals that inflation is being managed effectively.

Although stocks have experienced a recent pullback, they remain close to all-time highs. This minor dip seems reasonable given the robustness of the recent market rally and adjustments in policy expectations.

Eclipsing expectations…

Market resilience in the face of these challenges reflects optimism regarding economic and corporate earnings growth. Second-quarter 2024 earnings season has gotten underway and projections for profit growth are healthy.

That said, equities finished last week in negative territory as inflation growth surpassed projections (see chart).

The latest inflation reports (both for March) took center stage last week. The consumer price index (CPI) came in hotter than expected; the producer price index (PPI) came in a bit cooler but remains elevated.

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While underlying factors paint a less alarming picture, it’s evident that inflation isn’t decelerating swiftly enough to prompt immediate rate cuts by the Fed. Nonetheless, it’s crucial to note that the slower pace of inflation moderation is largely attributable to a robust economy and sustained demand.

The recent stumble in the stock market comes after a prolonged period of impressive gains. The rally, fueled by expectations of Fed rate cuts and the mania over artificial intelligence (AI), had been notable for its stability. While recent fluctuations may cause concern, the fundamental drivers of the market uptrend remain robust.

Sell in May and go away?

The month of May looms ahead. There’s a familiar Wall Street aphorism and you’ve probably heard it: “Sell in May and go away.” It’s a catchy phrase that rhymes. But is it legitimate advice?

There’s a pre-conceived notion that the stock market loses steam during the summer months, as investors and Wall Street insiders go on vacation. But the evidence suggests otherwise.

Over the last 40 years, the average return for the stock market from May to August was 3.2%, which isn’t a blockbuster gain but neither would you want to pass it up. The market was higher in 75% of those summer periods, with the best May through August gain generated in 2020 (+21%). The worst periods were in 1998 (-14%) and 2002 (-14%).

The upshot: “sell in May and go away” is clever wordplay, but lousy investment advice. The adage lacks empirical support. In fact, as I’ve just explained, the summer months have historically seen respectable market returns, with the majority of periods ending positively.

That said, the main U.S. equity averages extended their losses from last week and closed lower Monday as follows:

• DJIA: -0.65%
• S&P 500: -1.20%
• NASDAQ: -1.79%
• Russell 2000: -1.37%

The 10-year U.S. Treasury yield spiked by 2.87% to close at 4.62%. Exacerbating Wall Street’s anxiety are worsening tensions in the Middle East.

The week ahead…

The following economic reports, scheduled for release in the coming days, have the power to move markets:

Retail sales, homebuilder confidence (Monday); housing starts, building permits, industrial production, and a speech by Fed Chair Jerome Powell (Tuesday); Fed Beige book (Wednesday); initial jobless claims, existing home sales, and leading economic indicators (Thursday). Throughout the week, other Fed officials are set to speak as well.

While recent market events have sparked uncertainty, the underlying fundamentals remain favorable. The path to inflation moderation may be gradual, but a strong economy provides a solid foundation for continued growth. It’s essential for investors to maintain a long-term perspective.

Editor’s Note: Amid these uncertain investment conditions, don’t ignore cryptocurrency. That’s right…crypto.

As central banks move markets via monetary policy decisions, investors have sought refuge in decentralized assets such as Bitcoin (BTC) and Ethereum (ETH), which are perceived as immune to government manipulation and control.

Additionally, advancements in blockchain technology and decentralized finance (DeFi) have expanded the utility and functionality of cryptocurrencies, attracting a broader audience of investors and users.

Every portfolio should have exposure to crypto. But you need to be informed, to make the right choices. The experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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