Q2 earnings season is among us and inflation is being priced in. The Consumer Price Index (CPI) increased 0.9% in June after rising 0.6% in May.

The NFIB Small Business Survey Optimism Index broke above 100 for the month of June, implying strength across the small business segment in the U.S.

With the pandemic largely defeated in the U.S., life is reverting back to normal faster than most would have imagined.

The inflation narrative really took hold of the markets in March (it was all CNBC could talk about), but if you went long that trade then, you would have significantly underperformed.

Today’s inflation report was a rather big surprise (3.8% year-on-year reported, versus 3.3% expected), although it didn’t have as much effect on the stock market as one would have expected.

Unfortunately, despite the Federal Reserve’s efforts in growing the money supply by over 30x since 1970, the velocity of money has fallen precipitously.

With any good party, there always a bit of ‘liquidity’ involved to help loosen people up and get a good time going.

As the economy enters the late stages of reopening, we are going to see growth rates return to lower, more normalized levels.

In general, interest rates have a straightforward relationship with equities. Higher interest rates means lower prices, and lower interest rates means higher prices.

The recent outperformance in small cap stocks is fueling a strong reopening narrative in the markets.

f you’ve followed our content over the past few years, you’ll know that equity spreads are the cornerstone to how we interpret the relative attractiveness of equity prices.