Stocks closed sharply higher on Friday, although still down for the week.

But it was an impressive turnaround on Friday which saw most of the major indexes up by 2% or more.

Better-than-expected inflation numbers last week helped the markets stabilize. The Consumer Price Index (CPI, retail inflation) showed core inflation (ex-food & energy) at 3.1% y/y, down from last month's 3.3%. The Producer Price Index (PPI, wholesale inflation) came in at 3.4% y/y, down from last month's 3.6%. And while we're at it, the previous week's Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge) was at 2.6% y/y, down from last month's 2.8%.

That helped underscore Fed Chair Jerome Powell's assertion that he believes inflation is on a "sustainable path back to 2%."

Nonethless, the Fed insists it's not ready to cut interest rates again just yet, citing uncertainty around tariffs. Although, they're still forecasting 2 more rate cuts this year (presumably by 25 basis points each).

As for tariffs, that has roiled the market over the last several weeks. April 2^nd is when plenty of new tariffs are expected to go on. But negotiations are taking place and we'll have to see what happens.

The bulls will point out that tariffs during President Trump's first term did not lead to inflation. The bears, on the other hand, will point to tariffs on this go around being bigger and broader.

We shall see.

As for that surprising drop in Q1'25 GDP estimate by the Federal Reserve Bank of Atlanta's GDPNow, it's sitting at -2.4%, which is down sharply from the other week's +2.3%.

It's important to note that there are seasonal factors that can weigh on Q1's GDP. In fact, Q1 is considered the weakest quarter of the year. And we also have the potential skewing of a rush of imports that came in, in an effort to beat the new tariffs. (An increase in imports vs. exports can depress GDP numbers.)

But the GDPNow estimate should be taken with a grain of salt. Their website states it's not an "official forecast," but a "running estimate of real GDP growth based on available economic data for the current measured quarter." And as that data changes, so will the estimate. The next update by GDPNow will come today (Monday, 3/17.)

It's also interesting to hear how Commerce Secretary Howard Lutnick reacted when he heard of the forecast, calling it "ridiculous," and said there will "absolutely not" be a recession.

Either way, the earnings picture looks excellent. Q4'24 S&P earnings (with more than 98% of earnings already in), is on pace to show a 15.0% increase, with Q1'25 forecast at 6.1%, Q2 up 10.5%, Q3 up 9.9%, and Q4 up 10.9%.

So while recession fears have suddenly become a concern, none of that is showing up in the aggregate earnings estimates. And earnings are the key driver of stock prices.

It's been a tough few weeks. But pullbacks and corrections like these are often just opportunities in disguise.

And if you're bullish on the market for the rest of the year, getting in at these cheaper prices could prove to be a great gift.

See you tomorrow,