Equity markets surged on Thursday following a better-than-expected CPI report. The CPI cooled versus the previous month with month-to-month and YOY gains weaker than expected. The S&P 500 gained about 5.5% on the news but the euphoria may be misplaced. While inflation has cooled it remains hot at 7.7% YOY and 6.3% YOY at the core level. At these paces, the market might expect the FOMC to slow the pace of interest rate hikes but not to stop the entirely. This means interest rates will continue to rise and put pressure on the economy which is already showing signs of strain.

Next week, eyes will be on the Producer Price Index, retail sales and the index of leading indicators. If producer prices continue to rise, retail sales show signs of flagging and the leading indicators are negative this week's rally is sure to fade. In that light, Thursday's surge in prices may be best used to position for the next downturn in prices than as a trigger for buying stocks. The outlook for earnings continues to deteriorate and that is what's driving the market.