Stocks closed higher on Friday and sharply higher for the week.

Since the pullback/correction lows from 2 weeks ago to last week's close, the Dow is up 5.61%, the S&P 500 is up 8.50%, and the Nasdaq is up 12.24%. The small-cap Russell 2000 and mid-cap S&P 400 are also up 7.46% and 7.16% respectively.

What a difference a couple of weeks make.

The weaker than expected employment report a few weeks ago sent stocks plunging on talk of recession. But that notion was quickly rejected as stocks began a massive rebound almost immediately after those lows were put in. Then last week's better than expected inflation reports, which showed inflation easing even more than expected, coupled with a healthy round of economic data (not the least of which was a strong Retail Sales report), and strong earnings, sent stocks soaring.

In other news, the Housing Starts and Permits report showed Starts at 1.238 million (annualized) vs. last month's 1.329M and views for 1.342M. Permits were at 1.396M vs. last month's 1.454M and estimates for 1.430M.

The Consumer Sentiment Index rose to 67.8 from last month's 66.4 and surpassing the consensus for 67.0. The year-ahead inflation expectations (also part of that report), was unchanged at 2.9% vs. last month's 2.9% pace.

As the new week begins, stocks are within striking distance of their recent high closes from last month. The Dow is only 1.31% away, while the S&P is just 1.99% away. The Nasdaq has a bit more ground to make up and is still in pullback territory (albeit just barely). But they are only 5.45% away. The Russell and S&P 400 are 5.38% (also pullback territory) and 3.33% away.

We've got a full docket of economic reports out this week.

But the reports everybody is really waiting for come next week and the week after.

On Friday, 8/30, we'll get the next Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge. The last PCE report showed the annual core rate at 2.6%. The Fed has said numerous times that inflation doesn't have to hit 2% for them to begin cutting rates, they simply need enough confidence to believe it's on its way to 2% to begin cutting. And in order to gain that confidence, they need to see "more good" data that shows that. And another drop in this benchmark would serve as yet another 'good' data point to help them get to that level of confidence.

After that comes the next Employment Situation report on Friday, 9/6. The Fed is not only looking at inflation. They are also looking at the labor market. They would like to see a continued slowing of the jobs market, but not too much. They are looking for a soft landing. And a slowly cooling jobs market fits that bill. A rapidly deteriorating jobs market, however, will spook the market (as the last one did), while a hotter than expected jobs market could prolong the Fed's decision to cut.

So all eyes will be on next week's PCE inflation report and the following week's employment report, as those will be the last readings on those two metrics before the Fed meets on September 17-18. (Although, we will get one more look at the CPI and PPI reports on 9/11 and 9/12.)

In the meantime, we'll see if the markets can build upon last week's gains, effectively putting the recent pullback and correction in the rearview mirror.

See you tomorrow,