Welcome back to Opening Bell Daily.

Whatever you might think of Jerome Powell as a central banker, he delivers a hell of a commencement speech.

On Sunday at Georgetown University, he spoke not of interest rates or government debt, but of the importance of embracing change and taking initiative.

You can watch the full video here.

Now let’s get to the news.

What are markets really cheering for?

Each of the three major stock indexes hit records last week, with the Dow delivering the psychological kicker closing above 40,000 Friday.

Some of that optimism can be traced in part to a soft retail sales report, but we can mostly attribute it to Wednesday’s inflation print, which showed CPI increased 0.3% in April.

The data make Fed rate cuts more plausible this year — markets expect two — and also quiet chatter of a potential hike. 

Yet to be clear, the enthusiasm in markets did not come from overly good news.

The CPI number merely met expectations, rather than surprising in the wrong direction. 

Investors cheered the lack of bad news — a suspect turning point to any stock rally. 

“Current market pricing shows almost a full cut by September, and closer to 50bp of cumulative cuts by year end,” Bank of America strategists wrote in a Friday note. “In our view, markets are getting too excited.”

To that point, a single, as-expected report should neither justify celebration nor mark the start of a new pattern. 

Before last week, monthly inflation had come in hot three times in a row. That seems more telling of a trend than any stand-alone data. 

Consumers seem to agree. The University of Michigan’s latest survey showed consumers' expectations for inflation in the year ahead ticked higher in May from 3.2% to 3.5% — both numbers well above the Fed’s 2% target.

Bank of America strategists say plenty of inflation risks remain, particularly on the demand side of the equation, which will likely leave markets “disappointed.”

So it’s possible the huge stock rally — based on hopes for cooling inflation and Fed cuts — is a bit overextended. 

Then again, Wall Street tends to be optimistic. Barring meme stocks, the price of any asset today isn’t based on what it could do tomorrow or next week.

Mostly, markets trade based on how things will look multiple quarters down the road.

Recent record highs suggest investors have serious faith in the Fed being able to right the economic ship without a rebound in inflation or a recession. 

Corporate America, too, seems to be increasingly upbeat.

The number of S&P 500 companies mentioning “inflation” has fallen for seven quarters in a row, per FactSet.

Bank of America, for its part, remains more cautious. The economy is still running hotter than the Fed would like, but investors are trading as if that weren’t the case:

“Absent a major shock, there is no strong argument to cut rates any time soon, and equity markets are certainly not pricing a hard landing.”

*At a glance:

Elsewhere:

Rapid-fire:

Last thing:

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