Recommendations • Consider shorting healthcare equities — the sector is underperforming due to shaken investor confidence ahead of earnings. • Look for opportunities to add duration via 10-year Treasuries — yields have room to stabilize after today’s inflation data, presenting a good entry point. • Explore positioning in energy stocks as crude prices surged 2.67%, bolstered by geopolitical tensions that may lead to further supply constraints. Today, the markets reacted sharply to the latest inflation data while grappling with geopolitical tensions, particularly involving oil supply disruptions linked to US-Iran hostilities. According to Reuters, oil prices surged over 2%, reaching a one-month high. The CPI data released indicated a drop of 0.4% for June, coming in cooler than expectations, which contributed to the mixed sentiment surrounding rate hike expectations as Fed Chair Warsh's testimony suggested caution in declaring victory over inflation. Per the economic calendar, today’s significant release was the Consumer Price Index (CPI) for June, which printed -0.4% m/m vs. a forecast of -0.1%, and y/y CPI was at 3.8%, lower than the prior 4.2%. Additionally, core CPI came in at 2.6%, which was below the anticipated 2.8%, helping to buoy sentiment within equities, particularly growth sectors. The initial reaction saw a slight bounce in equities; however, concerns lingered over whether the Federal Reserve would maintain its hawkish stance. In the fixed income market, US Treasury yields spiked across the curve, most notably the 3-year yield, which increased by 8.0 bp (2.2σ), as investors recalibrated their expectations for monetary policy in light of the CPI print, viewing this data as a catalyst for sustained rate hikes. The 10-year Treasury yield also saw a rise of 6.0 bp, indicating a flattening yield curve which signals concerns about future growth amid aggressive rate adjustments. Corporate yields also increased, particularly within the CCC segment, which rose by 8.0 bp, reflecting a cautious risk-off mood. In equities, the Nasdaq composite gained 0.90%, largely driven by strong performances from mega-cap technology stocks, including Nvidia, which surged 4.06%. However, the health care sector was a notable underperformer, declining by 1.93% amidst scrutiny of earnings, with many pharmaceutical companies facing investor skepticism over their growth prospects post-earnings releases. Companies like Johnson & Johnson and UnitedHealth Group, reporting earnings tomorrow, will likely set the tone for further moves in this sector. Among commodities, a significant reaction to geopolitical developments saw crude oil prices surge, with both Brent and WTI increasing over 2%. The increased energy costs correlated with rising inflation expectations, as evidenced by the increase in inflation breakevens, suggesting a need for traders to adjust their inflation hedges. Notably, palladium and gold also fared well today, likely as a response to both inflationary pressures and flight-to-quality strategies. Our liquidity regime signal shows deteriorating conditions with a momentum reading of -0.834, suggesting that financial conditions are tightening; the signal remains negative overall, indicating economic concerns persist along with investor hesitance toward increasing exposure to risk assets. Despite this, the acceleration component is building, illustrating that while liquidity conditions are tight, the pace of deterioration may be stemming. In terms of prediction markets, we note Polymarket shows an 85% probability for the Fed to maintain a target range of 3.50-3.75% through July, reinforcing the notion of a steady Fed stance despite today’s inflation readings. This aligns with our macro regime classification of Slowdown / Hot / Neutral, which captures mixed signals across growth, inflation, and policy stance. Investors should remain cautious, closely monitoring tomorrow's healthcare earnings releases and upcoming inflation readings, notably the Core PPI, which may further clarify the Fed's monetary policy direction. Looking ahead, the markets are entering a crucial period wherein macro data and earnings reports could significantly impact sentiment. Fed communications and futures pricing suggest that investors should prepare for continued volatility, particularly within sectors sensitive to inflation and growth prospects. The upcoming releases, including the Fed Chair's testimony and PPI, are key catalysts to watch. Overall, the market tone remains cautious with an underlying risk-off sentiment as investors digest complex economic signals and geopolitical risks, thus positioning appropriately in both duration and sector-specific equities should be prioritized.