One of my guilty pleasures is reading comic books. Wall Street sometimes reminds me of a parallel dimension in the “Adventures of Superman” called Bizarro World, in which up is down, black is white, yes means no, and hello means goodbye.

In the financial world, sometimes good news is perceived as bad news, and vice versa. This week, the September readings for both the consumer price index (CPI) and producer price index (PPI) came in hotter than expected. But stocks rose anyway.

The inflation news was terrible on its face, especially for the incumbent Democrats with less than a month to go before the midterm elections in November. Politically, at least, it’s impossible to sugar-coat the numbers.

However, investors initially took the red-hot inflation readings in stride. Pessimism has become so pervasive, even a hint of positive interpretation can serve as a bullish catalyst.

In the wake of the CPI and PPI reports, the main U.S. stock indices on Thursday executed a powerful turnaround rally. The Dow Jones Industrial Average fell at least 500 points and climbed at least 800 points in a single trading day, the first time we’ve witnessed a rebound in the Dow of that magnitude.

Stocks opened higher on Friday but then pulled another sharp u-turn in midday trading, this time downward, to close in the red. It’s been a wild, volatile week as conflicting economic headlines whipsaw investors.

Too darn hot…

First, let’s take an unflinching look at the latest inflation data.

The U.S. Bureau of Labor Statistics (BLS) on Wednesday released the PPI for September. Year-over-year, overall PPI came in at 8.5% for the month, down from the previous reading of 8.7% in August but exceeding the forecast of 8.4%. Annual core PPI edged lower to 7.2% from 7.3%.

In a double whammy, the BLS on Thursday released the CPI for September. Overall CPI rose 8.2% year-over-year, down from 8.3% in August but versus expectations of 8.1%. Annual core CPI climbed 6.6% from 6.3%.

Both the PPI and CPI were negative surprises and cemented expectations that the Federal Reserve would remain aggressively hawkish for the rest of 2022, with a likely boost in rates of 0.75% when the Fed next meets in three weeks.

The S&P 500, NASDAQ, and Russell 2000 closed Friday with losses for the week; the Dow notched a gain for the week.

What has kept stock market declines this week from being even worse? For one thing, we’re seeing “capitulation” on expectations for a dovish pivot by the Fed. When investors throw in the towel on a data point, it usually signals that a positive turnaround is in the works. Peak inflation, and peak tightening, could be in the offing.

What’s more, the S&P 500 at its low had retraced roughly 50% of the gain it had made from the pandemic-induced low in 2020 to its peak in January 2022. Technicians view that milestone as a bullish signal of market recovery.

Those are all plausible, albeit slightly nebulous, narratives. The more tangible story can be found in corporate earnings, and economic indicators such as retail sales.

Read This Story: Q3 Earnings Season: Your Pre-Game Report

Third-quarter 2022 corporate earnings are decelerating but holding firm. For Q3, the estimated year-over-year earnings per share (EPS) growth rate for the S&P 500 is 2.4%, according to research firm FactSet.

Earnings season is when the rubber hits the road. Wall Street is closely watching Q3 corporate operating results, to see if several headwinds, including the Russia-Ukraine war, still-hot inflation, rising interest rates, and the global economic contraction will clobber earnings and by extension the stock market.

The following chart shows the challenges companies have been citing on earnings calls to date:

The Q3 reports are starting to pour in and so far, the results are encouraging, with caveats.

It’s noteworthy that the airlines industry, a cyclical sub-segment of the industrials sector, is projected to report a profit of $2.6 billion in Q3 2022 compared to a loss of -$731 million in Q3 2021. The industrials sector is expected to report the second-highest year-over-year earnings growth rate of all 11 sectors, at 24.1%. (Energy is number one, at a whopping 117.6%.)

Delta Air Lines (NYSE: DAL) impressed investors this week when it reported Q3 net income of $695 million on record revenue, due to a combination of higher fares and a surge in travel.

Tech remains under pressure from rising interest rates, and it’s been among the weakest performing sectors this week. The world’s biggest chipmaking company, Taiwan Semiconductor Manufacturing (NYSE: TSM), announced Thursday that it had cut its capital spending budget for 2022 by roughly 10%. TSM is a pivotal player in the manufacture of chips for companies such as Apple (NSDQ: AAPL) and NVIDIA (NSDQ: NVDA).

However, the banking sector should bring macroeconomic clarity. JPMorgan provided an auspicious sign, when before the opening bell Friday, the bank reported EPS of $3.12, beating estimates of $2.88, and revenue of $33.4 billion, beating the $32.1 billion estimate. JPM is the largest bank in the U.S. and an economic bellwether.

The U.S. Census Bureau on Friday released the retail sales report for September, which showed sluggish spending that missed expectations. U.S. retail and food services sales for September 2022 were $684.0 billion, virtually unchanged from the previous month, albeit 8.2% above September 2021. The silver lining is that the slowdown in spending is disinflationary.

Expect more stock market volatility in the coming weeks, as the mix of good and bad news continues to roil investor emotions.

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John Persinos is the editorial director of Investing Daily.

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