The Morning Call
6/22/26
The
Market
Technical
The S&P is attempting
to regain its upside momentum on the back of the hope for a US/Iran deal. That
said, it failed in its first attempt and is currently in a slight very, very
short term downtrend. On the plus side, the index (1) remains above all three
DMAs and (2) is in uptrends across all timeframes. Further, the (1) economy
continues to perform, (2) the latest Trump/Iran deal [?] is being viewed by
investors as at least a short term plus [I think that open to question; but as
long as the Market believes it, my opinion is worth butkus] and (3) with one huge IPO down and two to go,
I can’t believe that the Wall Street bankers are going to allow the Market to
go down ahead of these offerings.
But with a potentially
more hawkish Fed and the Market at a very generous valuation, I am somewhat skeptical
of just how jiggy to get.
Watch the follow
through for this recent rally. If the Market regains its former highs, that is
great---I will stay invested, but I am now questioning whether to add to my
holdings—'questioning’ being the operative word. If the Market goes on to make
a new lower low, I will likely take some money off the table---some of my
semiconductor holdings are well into their Sell Half Range and I have delayed
making those sales because of their strong upside momentum.
Patience.
I was a bit surprised
by the long bonds reaction to the more hawkish tone coming out of the FOMC
meeting. After all, tighter monetary policy usually produces higher rates. On
the other hand, recall when the Fed started its rate cutting program (lower rates)
the long bond sold off on fears of inflation. The opposite may be happening
now---TLT rallying on hope of a more responsible monetary policy. However, it
seems a bit early in the game to me for investors to be getting jiggy about a
better inflation environment since (1) we don’t even know if Warch was serious,
(2) whether the rest of the FOMC membership will go along and (3) even if they
do, how hard they are willing to press on the monetary brakes and how long it
will take to break the current inflation psychology.
What we know now
technically speaking is that (1) the long bond bounced off support, (2) it
reset its 50 DMA to support and is now challenging its 100 DMA [now resistance]
and (3) appears to have made reverse head and shoulders [a plus].
The least surprising
pin action of the week goes to gold. It remained in a well-defined downtrend;
it is below all three DMAs; and gold historically hates a strong dollar and higher
interest rates (the aforementioned TLT performance notwithstanding, short rates
were up)
The dollar was strong again last
week on the Fed news and appears to be developing a very short term uptrend. If
Warsh is the real deal, then my previous stance on the dollar (weak and stays
weak) will likely soon change.
Friday in the charts.
https://www.zerohedge.com/markets/hormuz-hopes-trump-warsh-worries-long-weekend-stocks-bonds-bounce-bitcoin-bullion-bruised
Summary: New Fed Chair
Kevin Warsh woke up to good news as a signed MOU and the resumption of
Hormuz flows pushed oil prices down and took the market's mind
off a hawkish Fed (stocks and bonds retraced yesterday's losses). The dollar
kept rising (on the back of ugly Yen weakness), dragging down gold and
bitcoin. OpEx removed some stabilizers for next week after
long-weekend. Trump cheered via TruthSocial: "OIL IS FLOWING... STOCK
MARKETS ARE ROARING... YOU'RE WELCOME!" Goldman Sachs Partner summed up
the state of play in equities very succinctly: continue to feel that this
market is narrow and concentrated with one factor (momentum) and one theme (ai
power/compute/memory) driving the bus and overcoming every challenge it has
faced thus far.
Friday 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
June option
expiration will weaken Market stability.
https://www.zerohedge.com/markets/june-option-expiration-will-weaken-equity-market-stability
Summary:
SpotGamma highlighted net
negative delta flows came mostly from put buying, with traders adding downside
hedges rather than simply closing calls.Implied volatility measures
confirmed the move, with the VIX and the VVIX -- or “vol of vol” -- climbing in
tandem. While the June options expiry isn’t bearish in and of itself, it’s a
large call-heavy expiration rolling off after the Fed already damaged the
positive-gamma backdrop. That leaves equities with less insulation as
traders debate whether Warsh’s Fed means tighter financial conditions and
weaker risk appetite heading into the summer months.
The most technically
important period of the year.
Summary:
We expect the next two weeks to be dominated by flows, not fundamentals. The
market is about to absorb the largest options expiration in history,
quarter-end pension rebalancing, and a significant reset in positioning across
major investor cohorts. Any resulting weakness should be viewed through a
technical lens.Looking beyond quarter-end, the setup remains favorable.Retail
demand is at record highs, ETF inflows continue to accelerate, corporate
buybacks remain robust, and the market is entering one of its strongest
seasonal periods of the year. We continue to believe the path of least
resistance is higher as markets transition into the second half of the year.
Something doesn’t
add up.
https://www.zerohedge.com/the-market-ear/something-doesnt-add-0
Summary:
Bond volatility is collapsing because the rates market sees fewer macro
uncertainties. Tech volatility remains elevated because uncertainty has
migrated from the economy to the AI buildout itself. Still just a short-term
divergence, but it is unusual to see equities ignore such a sharp decline in
bond volatility. The chart below shows the S&P 500 versus inverse MOVE.
Historically, lower bond volatility and higher equity prices tend to go hand in
hand. So far, stocks have not fully embraced the message from rates vol.Divergences
like these rarely persist. Either bond volatility is wrong, or other markets
have yet to catch up. MOVE has a habit of leading. The question is not why bond
volatility is collapsing. The question is why so many other markets are
refusing to believe it.
Monday morning
setup: Futures are modestly lower coming off the US holiday weekend, after
equities finished higher last week with both Dow and Russell clocking new ATHs
and SPX finishing in the green for the 11th time in the last 12 weeks. As
of 8:00am ET, S&P 500 futures edged down 0.1% while Nasdaq 100 contracts
are higher by 0.1% with chips outperforming as usual while hyperscalers, aka
"check payers" down as all Mag 7 are lower with TSLA (-1.4%) and
GOOGL (-1.6%; Google’s DeepMind VP John Jumper is leaving the company to join
Anthropic) being the biggest laggards. Overseas, Asian markets mostly higher
overnight with China and Japan the big gainers, up over 1.5%. European markets
higher, up ~0.3%. Big development over the weekend revolved around US-Iran
talks in Switzerland, where both sides ultimately highlighted progress
following some earlier headline noise. Donald Trump again threatened strikes on
Iran if Hezbollah keeps attacking Israel, & US and Iran set up a
communication line to avoid incidents and ensure safe passage of shipping
through the Strait of Hormuz. In the UK, PM Keir Starmer announced his
resignation outside 10 Downing Street. The pound erased losses after
briefly touching a 2026 low, while gilts rallied as an orderly leadership
transition took shape. Bond yields are 2-4bp higher, while the USD is
largely unchanged. WTI crude fell $-0.58 to $75.27 reversing all earlier gains
while Brent traded around $79. Gold and silver are higher as is bitcoin. There
is little on the corporate calendar and scant macro data, leaving traders
with little direction until Micron’s earnings due Wednesday and the Fed’s
preferred inflation gauge on Thursday take center stage. Fed speaker slate
includes Waller at 9am; Williams, Goolsbee, Kashkari and Barkin speak later
this week.
Fundamental
Headlines
The
Economy
The
US stats last week were balanced though the primary indicators were slightly negative
(one plus, two minus) with no inflation numbers. Overseas, the data was tilted
positive with two plus, one neutral and one negative price measure.
Subjects
of the week.:
A.
inflation, in particular long term inflation. The
reason is obvious---last week’s FOMC meeting, statement and presser in which
both the FOMC statement as well as Warsh’s presser were more hawkish than most
(I) expected.
First, two caveats.
(1) one statement/presser
does not a policy change make. The proof in the pudding is in the eating. Warsh could simply
be attempting to jawbone inflation expectations down. Plus, he has only one
vote. So until we see a concerted effort by the Fed to truly alter the current
regime of monetary accommodation, skepticism is warranted,
(2) along those
lines, Warsh is a Trump appointee. Trump is an avid easy money advocate. We don’t
know what those two discussed that earned Warsh his appointment. But it is hard
to believe that Warsh would totally deceive Trump regarding his intentions with
respect to monetary policy. Which leads me to the conclusion that either [a]
Warsh is sounding tough but unlikely to follow through on policy or [b] Trump
doesn’t care what happens after the November election since he can’t run and conceded
to Warsh the need to combat inflation. Which leaves what happens next a major
uncertainty.
However, if we
assume (the operative word) that Warsh means what he said, then history suggests
a couple of likely outcomes.
(1) the Market
hates tight money because [a] higher interest rates increase the rate of return
bogey that stocks must meet in any discounted value return equation, i.e., it lowers
relative equity value, and [b] it reduces liquidity which the stock market needs
to support higher valuations. Which means the Market in likely in for a rough
ride and
The squeeze on liquidity is just
getting started.
https://www.zerohedge.com/markets/squeeze-liquidity-just-getting-started
Summary:
In fact, wherever we look we see signs of rates getting tighter. They
have started to rise around the world as war inflation seeps into the global
economy. A diffusion index of central bank rate hikes (the Global Financial
Tightness Indicator in the chart below) has started to fall, indicating tighter
conditions. But it could just be getting going. A diffusion of global rate
futures shows there is a lot more tightening in the pipeline as
higher rate expectations build. And there is tightening at the longer end of
the curve too. My leading indicator for 10-year real yields, based on
excess liquidity, the Fed’s policy rate and the diffusion of central-bank rates
as above, shows they should rise over the next 3-4 months. There are tighter
conditions wherever you look. We might guess all of this will be bad for
stocks, and we’d be correct. There is almost a straight line
relationship with equities and excess liquidity. Progressively more negative
excess liquidity is associated with progressively worse stock returns over the
ensuing 3-6 months. And excess liquidity is set to keep falling. The
measure is defined as money growth less inflation less economic growth across
the G10. Money growth is still contributing positively, but elevated inflation
and a pick-up in growth, especially in the US, is now consuming money’s
contribution in its entirety. That means there is no
liquidity available that is “excess” to support risk assets, and before long
liquidity will need to come out of the market to maintain growth in the real
economy. SpaceX euphoria or not, markets can’t keep going up if the liquidity
isn’t there.
And
don’t forget, there will be more competition for what there is. Net equity
supply just turned positive for the first time since 2021 — and has a good
likelihood of staying supported due to a surfeit of issuance and fewer buybacks
than expected — posing a structural headwind for stocks. It’s thus turning
into an increasingly hostile environment for the equity market. Yet
none of this is deterring retail traders, with US equity ETFs showing their
second highest inflow on a monthly basis this week, finally parking the
hesitancy that had kept them at bay through the war. Retail is typically the
last group into the rally, driving the market into a mania phase and a blow-off
top. If history repeats, it’s set to be a costly, very bumpy ride.
(2) it sets up an
inevitable clash between monetary and fiscal policy. In short, if there is less
money in the system---
[a] there is less
money to finance the deficit and that means the government will likely have to
pay more to finance that deficit {i.e., higher interest rates which as I noted
above, the Market hates} and
[b] since the government
HAS TO finance its deficit, it will ultimately crowd out the rest of the
economy’s need for funds, most importantly corporate investments in plant,
equipment and R&D that sustains economic growth.
The $64,000
question is how our ruling class responds to this. If they do the right thing
and curb spending growth, the economy continues to grow but with less inflation.
If they don’t, then either the monetary officials cave and we are back on the
same track (higher inflation, higher growth) or they don’t and we are on a slower
growth, low inflation trajectory. Neither of which is what we want.
The bottom line is
if Warsh is the second coming of Volcker, both the economy and the Market are
in for the pain necessary for correcting the excesses of the past. If he is
bulls**ting us, then inflation is as good as it is going to get (lower oil prices
will certainly help in the very short term---see below), the economy will
continue to grow but at a slower secular rate than in the past and the Market
will likely continue to award excessive valuations to equities until someone recognizes
that the emperor has no clothes.
https://www.capitalspectator.com/data-vs-debate-will-the-bond-market-embrace-warshs-new-tone/
B.
the end of the war (?). The problem with addressing
this issue is that the circumstances change minute to minute. Even when the Donald
says that we have deal, there isn’t one (his has done that 39 times). But let’s
assume for the moment that there is one, the major economic impact will be on
oil and its downstream by products. The problem here is that there is wide
disagreement about how long it is going to take to return to normal---assuming
normal is the return to the ex-ante conditions in the Strait of Hormuz---which
is probably never going to happen now that Iran knows it can close Hormuz
anytime it wants. Still, in the short run, if there is a deal, oil will flow
and undoubtedly decline in price (although again there is widespread
disagreement about just how much). So we have to count that as a positive for
growth as well as inflation. But how positive?
Bottom line: I have no clue and neither does anybody
else. So the best we can be is cautiously optimistic. That said, unless we get
wildly lucky, I can’t believe this will slow a tightening in monetary policy in
the short run. Again if we get lucky it could mean less tightening for a
shorter period. But we won’t know that for a while. And yet, investors juice
the stock prices every time there are positive headlines even though it has
happened 39 times before with no result and even though the Market is higher
than it was before the war started. So color me underwhelmed.
US
International
Other
Update on big four recession indicators.
https://www.advisorperspectives.com/dshort/updates/2026/06/17/the-big-four-recession-indicators
Both business expansion and inflation have
continued in June.
https://bonddad.blogspot.com/2026/06/preliminary-evidence-that-both-business.html
Iran
Overnight news.
And.
https://www.zerohedge.com/energy/oil-keeps-flowing-through-hormuz-chokepoint-normalization-efforts
More analysis of ‘the deal’:
The biggest issue is enforcement.
Trump’s spin is incoherent.
https://www.ms.now/opinion/us-iran-deal-trump-vance-spin
Iran’s art of the deal.
https://www.powerlineblog.com/archives/2026/06/irans-art-of-the-deal.php
The ‘deal’ opens the way for charges on usage
of the Strait of Hormuz.
https://giftarticle.ft.com/giftarticle/actions/redeem/6e584a6e-5069-4862-9d44-f17eecf989b3
The real economic effects of the Iran war are
far from over.
Push back from Israel and the GOP.
The Israeli electorate not pleased.
Monetary Policy
Rate hikes are on for the G10.
https://www.reuters.com/business/finance/global-markets-central-banks-graphic-2026-06-18/
Higher interest
rates are coming.
https://talkmarkets.com/article/make-no-mistake-interest-rate-hikes-are-on-their-way-up-1781799491
Inflation
A super El Nino threatens waves of commodity
inflation.
AI
The usefulness of
AI models.
Summary: the first hyperscaler to signal that it can slow the
pace of spending will likely see its share price rewarded.
If that happens, others will take notice.That
is the reflexivity that ultimately stalls the CapEx cycle…not a lack of
demand,but investors deciding that
incremental returns on the next dollar of spend are no longer attractive. Watch
hyperscalers share price as leading indicator.
Tariffs
The tariff math doesn’t work.
https://thedailyeconomy.org/article/tariff-math-doesnt-work-and-the-white-house-already-admitted-it/
Investing
The latest from
BofA.
https://www.zerohedge.com/markets/harnett-stock-bubbles-are-always-ended-voters-and-vigilantes
Summary:
One week after urging Bank of America clients to keep "taking
chips off the table" - despite stocks ignoring the highest CPI
print in 3 years and blowing through to new record highs, and
then also ignoring the very hawkish FOMC, Warsh's first -
until "tighter financial conditions peak once Warsh turns hawkish at the
July 29th FOMC", in his latest rather brief Flow Show note (available here to pro
subs), BofA's Michael Harnett summarizes the current market landscape with
the letter V for Victory, Votes and Vigilantes, with markets needing
the latter two for the biggest tech bubble since 2021 to burst. The second V
is Votes: .. but if the GOP loses the Senate in Nov = big
"dollar down, yields down, stocks down" event; Which reminds Hartnett
of one of his favorite sayings: "booms & bubbles (such as this one)
are ended by voters & vigilantes (and vol events, e.g. JPY &
KRW crises)." Vigilantes. Since Warsh pick for Fed Jan 30th (roughly
the day gold peaked, and Bitcoin tumbled just after) there has been a big
US yield curve bear flattening (2s10s curve 75bps to 25bps)
on “inflation = hikes” fear; recall, CPI rate > unemployment rate
rare but always coincides with yield curve inversion (always a solid
recession signal)... .. But while the looming bear move from inflation boom to
stagflation bust is almost certain... . it can be halted if the big oil drop offsets
AI/wealth price spiral and sends CPI back <3%. In other words, the fate
of the US economy and stock market is now largely in Iran's hands.
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