Investors might want to keep their guard up as the stock market continues its rally. “The market has kind of gone back to sleep” in appearing to think, “all right, mission accomplished, inflation’s in the bag, the Fed can back off,” said Sameer Samana. Core inflation, which strips out food and energy, will probably remain “stubbornly’ high.

Investors should remain defensive, says Wells Fargo's Samana. He expects a recession to start in the second half of this year. Wells Fargo Investment Institute also likes energy and technology, he says. The technology-heavy Nasdaq Composite entered bull market territory Wednesday, Dow Jones Market Data says.

U.S. inflation, as measured by the consumer-price index, was unchanged in July. The pace of inflation over the past 12 months has slowed from 9.1% in June. Core CPI, which excludes food and energy, rose 0.3% in July, slowing from a 0.7% increase.

The S&P 500 now trading at a forward price-to-earnings ratio of around 17.5. The Fed remains committed to a 2% inflation target. “There’s some optimism to be had based on some of the data that we’ve seen,” Catrambone says.

U.S. stocks closed sharply higher Wednesday, with the Nasdaq Composite leading the way up. Catrambone said he worries that “the market is ignoring’ how much work the Fed says it has yet to do in bringing down inflation. Plus, “global headwinds” remain, he said.
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