The economic stars now appear to be aligned for a possible short-term summer rally. At a minimum, the risk has shifted more to the short than the long side. The reason: the economy is slowing down but not yet enough to affect corporate profits in the short run while inflation is downshifting as well, which argues for an end to the Fed’s current rate hike cycle.

The Fed saw this rather clearly last Thursday when it decided to go just for another 25 basis points -- refusing to hop on to the “one big one and done” 50 basis point bandwagon. This puts another rate hike on hold for at least two months because the next FOMC meeting isn’t until August. The stock market correctly interpreted the Fed’s action as appropriately measured and had one of its best days in years.

What exists now is at least a glimmer of hope for the proverbial “soft landing” in which the economy will settle in to a slower, more sustainable rate of growth of around 3%, with inflation moderating. I personally would not place any longer term bets that this hope will become reality. With the ECRI weekly leading index now projecting quasi-recessionary growth of only 1.5% annually in the GDP and the housing market continuing to slide into the tank, darker days for the market are likely ahead -- if for no other reason than at some point earnings are going to disappoint mightily in a sluggish economy.

Still, in the short run, traders may well be able to make a few bucks now on the long side. That forecast will hold until there is any new and credible evidence of over-exuberant inflationary pressures.

This Week’s Market Movers: A Busy Un-busy Week

With the markets closed on Tuesday and a long weekend wiping out Monday, this will be an un-busy market in the face of a very busy report week. Chip billings, auto sales, construction spending, and my favorite supply side indicator the ISM index fly on Monday. Wednesday it’s factory orders and Friday, it’s the all important jobs report. That’s the likely big market mover -- the jobs report. I’m looking for a continued weakening, which the both the stock and bond markets will likely like as another sign of moderating inflation.

Portfolio Picks and Pans: Epix and VIta

Both of my biotech holdings, (EPIX | Quote | Chart | News | PowerRating) and (VITA | Quote | Chart | News | PowerRating), had very nice weeks. What I have liked about the technical action has been a pattern of a steady fall in their share prices on low volume. Then, a nice thrust upwards on high volume. I’ll nurse these two holdings while I continue to hunt now for a few more long prospects.

Peter Navarro is a business professor at the University of California and the author of the best-selling investment book “If It’s Raining in Brazil, Buy Starbucks.” His latest book is The Well-Timed Strategy.”