Welcome to my latest video presentation. Below is a condensed transcript. The video contains several charts and further details.

We’ve been bombarded with crucial economic data lately, regarding inflation and retail sales. The inflation numbers have been grim, and yet, strong retail numbers have exerted a countervailing force. Amid the mixed bag of data, it seems likely that the stock market has stabilized and the table is set for a rebound.

After a dismal first half of 2022, during which all sectors except energy declined, we’re seeing glimmers of hope that maybe, just maybe, better days are ahead.

The U.S. Census Bureau reported last Friday that retail sales jumped 1% month-over-month in June, surpassing forecasts of an 0.9% gain. On a year-over-year basis, retail sales rose by 8.4%. The June retail numbers came in strong, despite rising inflation and fears of a recession.

The American shopper has given Wall Street a shot of confidence. In the wake of the encouraging retail sales data, the major U.S. stock market indices closed sharply higher Friday, snapping a five-day losing streak.

The major averages still lost ground for the week, as recession talk became more prevalent and the Federal Reserve’s tightening rattled nerves. The betting is that the Fed will hike rates this month by 75 basis points (bps), or perhaps as much as 100 bps.

But Friday’s powerful rally was a welcome respite. It’s increasingly apparent that the stock market already has reached a bottom. The jump in retail sales lifted investor spirits, and it occurred despite torrid inflation.

The U.S. Bureau of Labor Statistics (BLS) reported last Wednesday that the consumer price index (CPI) rose 9.1% over the last 12 months.

The long-term average inflation rate in the U.S. is around 3.2%, although consumers had grown accustomed to much milder annual price increases, averaging only 1.75% from 2010 to 2019.

On Thursday, the BLS released the producer price index (PPI) for June. The PPI, a gauge of the prices paid to producers of goods and services, increased 1.1% last month and 11.3% year-over-year. However, the core PP excluding foods and energy is softening.

Are we heading for an inevitable recession? The combination of a robust jobs market and resilient retail sales suggests that we might dodge the recessionary bullet.

Since the end of World War II, recessions in the United States have varied in length and severity. Even if we do find ourselves in a recession, I think it’s likely to be relatively quick and shallow.

The week ahead…

Keep an eye on economic reports scheduled for release this week. The most crucial number will be jobless claims, released on Thursday. Frankly, hiring trends have not been consistent with recessions.

We also face a slew of data regarding the housing sector, a bellwether for the overall economy. Housing sector reports are leading indicators.

Inflation is a very real problem, but the topic is obfuscated by political partisanship. The Democrats downplay inflation; the Republicans exaggerate it. With the midterms approaching, don’t expect clarity from Washington, DC (not that we ever could).

The truth about inflation lays in the middle. Yes, inflation is hot. But commodity prices have been on a downward slope in recent weeks and supply chain bottlenecks are easing, all of which suggests that we’ll soon get a handle on inflation.

The Federal Reserve has been front-loading interest rate hikes, which means the U.S. central bank will have leeway to get dovish again when the CPI and PPI subside.

In the meantime, second-quarter earnings season continues this week. It’s been a mixed bag so far, with major banks missing expectations, but overall corporate earnings are healthy enough to provide a floor beneath stocks.

For Q2 2022, the blended earnings growth rate for the S&P 500 is 4.2%, according to research firm FactSet. Earnings growth has decelerated, but it hasn’t collapsed, either.

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John Persinos is the editorial director of Investing Daily.

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