Offsetting Forces, and a Reprieve That (for now) Looks Short-Lived

The last line in our weekly macro note below captures how to be thinking about the immediate-term setup for markets:

"...the forces at work are large, and, for now, offsetting."

The short-lived reprieve I alluded to in the title is all about the latest inflation print and go-forward sentiment... The inflation print captured the US/Iran memo-of-understanding-inspired comedown in energy prices, while improved sentiment I suspect was largely inspired by the same... But, as I type, alas, the war is back on in notable force and energy prices are consequently back up, big!

Gasoline (the X marks July 1):

And, as you've likely noticed -- while other forces are in play as well (see yesterday's note) -- the stock market has taken notice.

The S&P 500 last week: 

Next week is relatively calm on the data front (although likely to be very volatile on the Hormuz front)... The following week features the Fed and the Bank of Japan respective meetings... While both are of course key to the ongoing assessment of go-forward probabilities, at this juncture markets will be hyper-focused on the latter... More on that to come herein.

In the meantime, here's your summary of our weekly PWA Index scoring, followed by this week's macro note* to clients:

Reading the Rearview, Watching the Road — Week of July 13, 2026*

Our internal conditions gauge, which scores several dozen economic inputs each week and nets the positives against the negatives, landed this week at exactly zero — its fourth straight week hovering right around that neutral line. On the surface, that sounds like an economy in balance. As usual, the interesting part is what's underneath.

This was the biggest week for inflation news in some time, and the news was genuinely good. Consumer prices actually fell in June — the largest one-month decline in over six years — bringing the annual inflation rate down from 4.2% to 3.5%. Prices at the wholesale level fell as well, and the measure that strips out food and energy came in cooler than economists expected across the board. Households noticed: consumer confidence jumped for a second straight month, and families' expectations for future inflation eased. After months of writing to you about inflation pressures building, we're glad to report a month where they visibly receded.

Here's the caveat, and it's an important one: June's relief came largely from a steep drop in gasoline prices — and that drop has already reversed. Hostilities in the Middle East resumed in early July, oil prices climbed roughly twelve percent just this past week, and prices at the pump have been moving back up. In other words, the June inflation report described conditions that have since changed. We'd expect the July numbers, when they arrive next month, to look less friendly. The bond market seems to agree — measures of longer-term inflation expectations barely budged on the good news, which tells you professional investors are treating June as a temporary dip rather than a turning point.

Meanwhile, the rest of the economy keeps sending the same mixed signals it has all summer. The consumer remains remarkably sturdy: retail spending rose for a sixth straight month, and layoffs stay historically low. Manufacturing surveys in several regions came in surprisingly strong — one posted its best reading in nearly five years. At the same time, housing continues to struggle, with builder confidence at a multi-year low and single-family construction permits falling, and the federal budget picture deteriorated meaningfully in June, with interest costs on the national debt rising sharply from a year ago.

The new Federal Reserve chair testified before Congress this week for the first time, pledging that the Fed has "no tolerance" for persistently high inflation while declining to signal any specific next move. The Fed meets at the end of this month, alongside a heavy stretch of corporate earnings and the first official estimate of the economy's second-quarter growth. That late-July window, together with developments in the Middle East, will do a lot to shape the second half of the year.

Our takeaway is unchanged in substance even as it improves in tone: an economy that refuses to weaken decisively, inflation that has cooled but whose pressures haven't been extinguished, and an unusually wide range of possible paths ahead. That's precisely the environment our portfolio is built for — genuinely diversified across regions and asset classes, with meaningful positions in real assets and sectors that tend to hold their value when prices rise, and enough flexibility to adjust as the picture clarifies. Zero on the gauge doesn't mean nothing is happening. It means the forces at work are large, and for now, offsetting.

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This commentary is provided for informational purposes only and does not constitute investment advice or a solicitation to buy or sell any security. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal.

*This note was prepared with AI assistance and reflects the analysis and views of Marty Mazorra, Chief Investment Officer, under advisor review.