06|14|2022

Wrong Kind of Heat…| June 10, 2022

There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?

Monday                       S&P 500 0.27%| NASDAQ 1.09%

ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.

Tuesday                       S&P 500 0.62% | NASDAQ .84%

JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.

Wednesday                 S&P 500 0.51% | NASDAQ 0.88%

Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.

Thursday                               S&P 500        -% | NASDAQ      -%

Happy Independence Day!

Friday                                    S&P 500 0.54% | NASDAQ 0.90%

Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.

Conclusion                            S&P 500 1.95% | NASDAQ 3.55%

This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.

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Markets kind of heated up last week but in the wrong way. Should more of the same be expected?

Monday                            S&P 500 0.40% | NASDAQ 0.48%

Manufacturing data out Monday morning signaled a weaker than expected economy. It is still growing but at a slower pace than expected. This caused markets to come out of the gates hot. That momentum cooled as the day wore on. The major catalyst to this was the 10-year treasury rate climbing above 3%. This benchmark is symbolic of future rate hikes by the Federal Reserve Board (FRB).

Tuesday                            S&P 500 0.95% | NASDAQ 0.94%

Markets opened in the red but bounced as the 10-year treasury fell below a 3% interest rate. Energy shares benefited from a Goldman Sachs forecast that projected $140 oil this summer (currently appx. $121). Additionally, World bank projections for global growth were revised lower, which implies there will be pressure on FRB hike decisions.

Wednesday                      S&P 500 1.08% | NASDAQ 0.73%

Equities fell on the day. This came as oil inventories were lower than expect. Lower inventories mean higher prices, in turn, means more inflation–which ultimately, means more rate hikes…NYMEX crude oil was up over 2% on the day.

Thursday                          S&P 500 2.38% | NASDAQ 2.75%

Markets tumbled on Thursday on news that the ECB would begin rate hikes in the coming month. Oil markets faired better with NYMEX crude only falling 0.57%. Friday brings Consumer Price Index (CPI) data that investors may very well be priming for.

Friday                                S&P 500 2.91% | NASDAQ 3.52%

CPI data out Friday morning showed inflation had unexpectedly climbed to the highest level in recent history. This led to renewed selling pressure on the markets as it could create a more aggressive FRB. Interestingly, Core CPI which strips out food and fuel, actually went down. Weaker prices in those key areas would be key to renewed consumer confidence.

Conclusion                       S&P 500 5.66% | NASDAQ 7.05%

The prior two weeks resembled a calming in markets for the first time since March. This last week made sure no one was lulled into a false sense of stability. Volatility rose sharply on Friday, but still remains below long-term peaks. Also, the S&P 500 has fallen within striking distance of closing in a technical bear market. It should be expected that the markets will retest those lows in the near future.

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.