It's a day for mixed signals. Inflation came in below expectations at 3 and 1/2% year over year. A lot of that was relief at the gas pump. But core inflation--

so inflation stripping out energy, food--

that was also lower. And it's key because the Fed is especially watching for signs inflation remains sticky. And in fact, in the wake of the inflation print we saw expectations for a July hike collapse.

But that doesn't mean all is clear on the inflation front. The Iran war is back. The Strait is again effectively closed, and that means gas prices are likely moving higher once again. And today, in his comments before Congress, new Fed Chair Kevin Warsh suggested the inflation battle isn't yet won. So we are still looking at a summer of yield curve uncertainty.

Meanwhile, banks kicked off the unofficial start to the earnings season today with a euphoric tone, which is fitting when we think that the analysts' expectations is for 20-plus percent year-over-year growth for companies in the S&P 500 index. And FactSet points out that if companies outperform as much as is typical, that could grow to as much as 29%. We haven't seen that earnings growth since late 2021.

Here's the thing. We also have to account for valuation. And while that might not be excessive for the market as a whole, it's not hard to think the easy gains haven't already been made in areas like memory or semiconductor chips. In fact, our back of the envelope analysis suggests, it wouldn't take much valuation compression for the back half of the year to have quieter performance than the first half.

So what does this all mean? Well, for what it's worth, I still think the higher yields across the curve, but particularly at the front end for those short maturity bonds, it creates a nice income stream for diversified investors and even offers some measure of protection from inflation surprises.

And I think the market has a favorable backdrop for equities, though I am leery of parts of the AI trade that have already soared, even if they've come off their peaks a bit. There's just a lot of enthusiasm already baked into prices. This is Taking Stock with Empower.