Don’t look now, but June is shaping up to be one of the strongest trading months we’ve seen in a while. It’s not just the hyped-up A.I. market, either (as we saw from good earnings reports from Oracle ((ORCL Quick QuoteORCL - Free Report) and Adobe ((ADBE Quick QuoteADBE - Free Report) — equities across indices have begun to participate in the boon that has recently gotten a further tailwind from last week’s Fed decision to hold interest rates at their current 5.00-5.25%. (The Fed did say it may have as many as two more hikes in them, but the market currently takes this as the Fed “talking tough.”)

This month so far has seen the small-cap Russell 2000 ratchet up a very strong +8% (swinging into the green year-to-date), the Nasdaq +7.4% (an almost jaw-dropping +40% from the start of the year), the S&P 500 +6% (to a 14-month high) and even the blue-chip Dow, which has been the laggard all year, +5% (also swinging into positive territory for 2023). They say the trading year before an election year is always the strongest for the market; though it seemed unattainable at times in the early months of this year, we may indeed be on course for this to bear out.

Last week also brought us improvements in inflation metrics, specifically Consumer Price Index (CPI) and Producer Price Index (PPI) prints, which came down significantly month over month on a yearly basis. Year-over-year CPI for May, aka the “Inflation Rate,” is now +4.0% — 90 basis points (bps) lower than April. The core read, stripping out volatile food and energy prices, is still relatively high at +5.3% (down 2- bps month over month). PPI year over year is now +1.1%, +2.3% on core — the first inflation measures back down to the Fed’s desired range.

Thus, the U.S. economy continues to make steady progress on inflation. While the risk of an economic recession is still on the table, according to Zacks Director of Research Sheraz Mian, it’s no longer the base-case scenario. In fact, odds of a pending recession, while higher than they may be in a randomly-selected year, are notably lower than they were just a couple months ago. The specter that the Fed may actually make a “soft landing” are about as good as they’ve ever been. And the market is bidding up as a direct result.

This morning, May Housing Starts zoomed higher by +21.7% to 1.63 million seasonally adjusted, annualized units from a downwardly revised 1.34 million the previous month. It’s also the strongest monthly figure we’ve seen since March of ’22. Apparently, home buyers are getting used to a new normal of higher mortgage rates, so homebuilders have begun to vastly increase supply. This data also gibes with yesterday’s Homebuilders Survey, which has pushed past 5% for the first time in a year.

Building Permits, also for May, increased +5.2% to 1.49 million units, approaching the 1.5 million-plus tier we’d seen back in October of last year. Permits are also a good gauge for future Starts, so it would appear we’re seeing the dam break in terms of the housing market surging forward. It’s tough to see how this would assist the lower-inflation narrative — it probably wouldn’t — so maybe the Fed holding onto a couple more rate hikes in the months to come won’t prove to be a bluff, after all.