August's CPI will be released Tuesday morning. We think that last week's 3.6% rally in the S&P 500 occurred because investors started to anticipate a significant easing of inflationary pressures (table below). We know that gasoline prices plummeted and used car prices declined last month. There are even a few signs that rent inflation may be cooling off.
If the market rallies on a better-than-expected CPI print, we would suggest that trading accounts take some of their profits. Long-term investors should continue to invest for the long-term with more confidence that the worst of the inflation news is behind us.