The Morning Call
7/1/26
I am off to the beach. Back on Monday. Have a great 4th.
The
Market
Technical
Tuesday in the
charts.
https://www.zerohedge.com/markets/monthquarterhalf-ends-markets-making-multi-year-records
Summary:
Stocks are higher on the month, higher on the quarter, and higher on
the half... but the path from there to here was exhausting (with
leadership changing hands notably). From oil's wild fluctuations to
a dramatic swing in Fed expectations, long-bond yields are flat,
the dollar keeps strengthening as the 'sell America' trade collapses. Gold
suffers its worst quarter since 2013 as Bitcoin was battered for
the third straight quarter. we see four portfolio implications:
1.
Rotate
from Platform to Pipeline: Capital is flowing away from hyperscaler
platforms (Mag7 FCF decline) toward bottleneck enablers (Semiconductors,
Memory, Power Grid, Utilities). Maintain overweight exposure to AI
infrastructure supply chains.
2.
Monitor
Leverage Decay: Record leveraged ETF volumes and extreme short positioning create a
high-risk environment for sudden volatility spikes. Reduce reliance on
directional beta; utilize volatility hedging (NDX puts) given the elevated
skew.
3.
Position
for Geopolitical Inflation: De-dollarization and supply chain
fragmentation are structurally higher for commodities and gold. Consider EM
local-currency assets benefiting from reserve diversification, and maintain
energy exposure given Hormuz/Iran supply risks.
4.
Exploit
Small-Cap Momentum: The R2K outperformance trend remains intact. Favor
domestic-focused small/mid-caps less exposed to global supply chain
disruptions, while trimming overextended AI momentum names showing technical
retracement.
And with the 'worst' of the
war's impact behind us (maybe), we give the last words to Apollo's Torsten Slok
who points out, the narrative in markets is changing from “lower oil
prices mean lower inflation” to “lower oil prices mean more demand in an
already overheating economy, which means higher inflation.”
Tuesday in the
technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Below the Market’s
calm surface.
https://www.zerohedge.com/markets/something-unprecedented-taking-place-below-markets-calm-surface
Summary:
the take home message is that the transmission of the leverage retail investors
have been taking on to chase the memory bubble has moved from single stocks, to
options, to levered ETFs (all with progressively greater short gamma) and has
hit the final frontier: dealer leverage, which has its limits. And the answer
when the whole DRAM/levered ETF/Memory bubble house of cards comes crashing
down is simple: when the dealer funding spread, already at record
highs, becomes unbearable to one or more counterparties, and liquidity yanked,
sending the entire leverage chain in reverse... and risk crashing down.
Bond volatility is
stirring.
https://www.zerohedge.com/the-market-ear/bond-vol-stirring
Summary;
Yesterday's jump in Treasury yields wasn't just notable for its size. Bond
volatility also caught a bid, and several cross-asset relationships are
beginning to diverge. It's far too early to call it a trend, but the rates
market deserves a closer look. The 10-year yield ripped 10bps higher yesterday,
bouncing almost exactly off its long-term trendline. Perhaps it was merely an
H2-related squeeze, but a 10bp move deserves attention. Even more noteworthy,
bond volatility moved higher alongside yields. Nothing major yet, but the VIX
and the MOVE index are starting to drift apart. It's only a small divergence
for now, but one worth keeping an eye on. SPX has enjoyed falling bond
volatility for months. The latest divergence between the index and the inverse
MOVE remains small, but it's one we're watching closely.
What happens next
with gold?
https://talkmarkets.com/article/gold-breaks-below-4000-what-happened-and-what-comes-next-1782817945
Wednesday morning
setup. US
equity futures point to a softer start to the third quarter as
investors await a fresh batch of economic data and the first major overseas
appearance by Fed Chair Kevin Warsh. As of 8:20am ET, S&P futures are down
0.2%, off session lows, while Nasdaq futures are down 0.6: techs lags
following NDX’s 3.9% gain over the last 2 days; in premarket trading,
chipmakers, which did much of the heavy lifting as investors piled into AI
beneficiaries, were weaker with Mag7s mostly lower. Nike dropped 2% following a
cautious outlook. Software names including Microsoft
gained. Cyclicals are under pressure with HC and Staples leading a
Defensives bid. Overnight the US removed Anthropic’s foreign access
restrictions. Bond yields are flat to down 1bp, and USD is bid as positive
progress is reported in US / Iran talk. In commodities, crude prices are lower
as distillates rise; WTI futures are down about 0.8% following the biggest
quarterly drop since the pandemic. Metals are under pressure, with Ags bid as
the group has been the recent outperformer. US economic data calendar includes
June ADP employment change (8:15am), June final S&P Global manufacturing
PMI (9:45am) and June ISM manufacturing (10am).
Fundamental
Headlines
The
Economy
US
Weekly mortgage
applications were unchanged from last week while purchase applications were up
0.5%.
Month to date
retail chain store sales were up 10.5% versus +10.0% in the prior week.
The
April housing index fell 0.1% versus forecasts of +0.2.
The April Case
Shiller home price index was up 1.0% versus predictions of +0.7%.
May job openings
(JOLTS) totaled 7.59 million versus estimates of 7.2 million.
https://www.advisorperspectives.com/dshort/updates/2026/06/30/jolts-report-job-openings-may-2026
The
June Chicago PMI came in at 56.7 versus expectations of 58.1.
The
June consumer confidence index was 91.2 versus consensus of 94.7.
The June ADP employment
report showed job increases of 98,000 versus projections of 113,000.
https://www.zerohedge.com/personal-finance/adp-employment-report-shows-12th-straight-month-job-gains
International
The
Q2 Japanese large manufacturers index was 22 versus forecasts of 16; the Q2
small manufacturers index was 9 versus 4; the Q2 nonmanufacturers index was 37 versus
38; the June manufacturing PMI was 54.8 versus 54.9; the June consumer
confidence index was 33.8 versus 34.
The June German
manufacturing PMI was reported at 50.3 versus predictions of 50.0; the June EU
manufacturing PMI was 51.4 versus 51.3; the June UK manufacturing PMI was 52.5
versus 53.1.
The
June EU flash CPI was -0.1% versus estimates of +0.2%.
Other
A somewhat different Q2 nowcast.
https://politicalcalculations.blogspot.com/2026/06/climbing-limo-gdp-forecast-for-2026-q2.html
Iran
Overnight news.
Monetary
Policy
The case for more Fed transparency (a jab at Warsh).
https://stayathomemacro.substack.com/p/where-is-the-fed-headed
Fiscal
Policy
Inflation
and nominal GDP growth are helping to rescue the government from its fiscal mess.
The problem with the new F1 visa policy.
Again demonstrating economic ignorance.
AI
The
generational force hollowing out the economy. The author’s
analysis of the problem that AI investment expansion is important to
consider. It is disappointing that his
solution is for the government to fix it.
https://www.nytimes.com/2026/06/29/opinion/ai-economy-affordability.html
Blackstone selling three Virginia data
centers.
Apollo delivers scathing rebuke of AI.
Investing
Where is all the money coming from?
How the Mag 7
became the Lag 7.
https://www.axios.com/2026/06/30/mag-seven-tech-stocks
What history tells
us about the AI investment boom.
https://www.fa-mag.com/news/what-history-tells-us-about-the-ai-investment-boom-87567.html
News on Stocks in Our Portfolios
What
I am reading today
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