By Joseph Morrison

Inflation Pressure

Since 2008, there has been a world war raging pitting the world's central banks against global economic meltdown. The central banks' main weapon has been some of the loosest monetary policies in history. Thus far, it is too early to determine whether the central banks will be victorious. What is clear is that the initial policies of the U.S. Treasury and Federal Reserve saved the banking system from collapse as well as buoyed the United States economy. The subsequent maneuvers still have to play out before being judged fully for their effects on the economy. At this point, it is certain that the Quantitative Easing policies of the U.S. Federal Reserve [Fed] as well as the easing by other central banks have potentially led to asset bubbles.

Inflation is the goal of the central bank actions, no doubt and this is a straightforward process. The

Stocks Break Above Twelve Year Base

The market's recent shift back into economically sensitive assets tells us stocks could continue their surprising march higher despite the ongoing calls for "sell in May". As shown in the chart below, the S&P 500 made no progress during the last twelve years. The "no progress" pattern was recently broken, which could lead to head-scratching gains in the months ahead.

(click to enlarge)

Market Has Responded To Economic Data

The financial markets were pleased with the widely-anticipated monthly employment report that was released in early May. Monday's session was greeted with a better than expected number on the retail front. From Bloomberg:

Sales at U.S. retailers unexpectedly advanced in April, helping ease concern of a sustained pullback in consumer spending that would stifle the economy. Retail purchases climbed by the most in four months minus receipts from service stations, where cheaper gasoline prices

As of this morning, 88% of S&P 500 companies are trading above their 50-day moving averages. This is a very high reading, but it's not quite as high as the reading we saw back in January.

(click to enlarge)Looking at the ten major sectors, the Consumer Discretionary