Stocks closed solidly higher on Friday, but still finished lower for the week.

Friday's Consumer Price Index (CPI ? retail inflation) report came in mostly as expected, and provided a bit of relief after Thursday's hotter-than-expected Producer Price Index (PPI ? wholesale inflation) report.

Headline CPI was up 0.4% m/m vs. last month's 0.1% and matching estimates for 0.4%. The y/y rate came in at 3.4%, in line with last month and views for the same. The core rate (ex-food and energy) was at 0.3% m/m vs. last month's 0.2% and forecast for 0.2%, while the y/y rate eased to 2.4% as expected and besting last month's 2.5%.

It also confirmed that higher producer inflation (5.4% headline annual and 4.6% core annual) is only partially being passed onto the consumer.

Investors cheered the news, but it might not be enough to stem an expected 25-basis point rate hike when the Fed concludes their 2-day FOMC meeting on Wednesday, 9/16, which stands at an 87.3% probability, according to the CME FedWatch.

But if the Fed does follow through on higher rates, as is widely expected, it might be viewed as welcomed news by the market. Yields have been climbing higher on their own without the Fed. And a rate hike would align with the market, and underscore the Fed's independence, and prove their commitment to fighting inflation.

The key question, however, is whether the Fed signals more tightening ahead, or hints at a pause (one and done).

Also helping the market on Friday was falling oil prices. But oil was up sharply for the week as tensions in the Middle East continue to flare up, as broadening challenges to oil export routes come under pressure from Iran and their proxies.

If oil continues to climb, that could add additional headwinds for the market. If oil can stabilize or go down, that could give the market a lift, and begin undoing the damage that rising oil prices have exacted on the market as of late.

Despite rising yields and oil prices, there are plenty of bullish catalysts that suggests much higher prices to come. That includes 20%+ S&P 500 EPS growth forecasts for each of the next several quarters, a robust Q3 GDP forecast of 4.4% (which would make it the fastest pace since Q3'25 when it too hit 4.4%, and the second fastest since Q2'21 post-pandemic 6.7%), and of course, the ongoing AI boom, which is alive and well and accelerating.

And for that, I'm expecting a strong finish for the rest of the year.

Should be a busy week this week. And ironically, this week's Fed decision could be the catalyst to reverse the recent oversold conditions and begin the next leg up.

See you tomorrow,