The Morning Call
6/21/22
The
Market
Technical
As I speculated
last week, the S&P re-challenged its 5/20 low successfully and is in the
process of a test of the lower boundary of its intermediate term uptrend. While
it made a feeble attempt at a rally on Friday, it remained below the boundary;
if it stays there through the close on Wednesday it will re-set to a trading
range. And if that occurs then an assault on the 50% Fibonacci level (~3507)
seems likely. While I think that is probable, I started to nibble again on
Friday. But it is no time to go all in.
As you can see,
the long bond rallied after the FOMC meeting on Wednesday, in the process,
recovering above the lower boundary of its intermediate term trading range. I
speculate below that this week’s pin action in all the markets reflected the
sudden realization by investors that they had adequately discounted higher
interest rates but not a recession. I suggest that the Market selloff and the
bond rally reflects that notion.
GLD continues to
hang in there. It doesn’t seem to matter if investors are worried about
inflation or recession, gold has maintained its upward bias. Until it doesn’t,
my assumption is that momentum remains to the upside.
The
dollar’s technical action last week was about as good as it could get: it
closed those two huge gap down opens, then promptly rallied. As long as the
globe looks at the US as the safest place to invest, the uptrend is not apt to
change.
Friday in the
charts.
More charts.
https://www.zerohedge.com/the-market-ear/holidayobservations
Are we set for a
short squeeze?
https://www.zerohedge.com/the-market-ear/caawezoyxd
Fundamental
Headlines
The
Economy
Review of last Week
Last week’s economic
dataflow was overwhelmingly negative as were the primary indicators. Overseas
stats were also downbeat.
The major headline
of the week was, of course, the FOMC meeting, press release and the Powell
presser---which I viewed as negative: despite Powell vow to bring down
inflation dramatically, in the end he was too wishy, washy though, to his
credit, he admitted that the Fed’s ability to stick a soft landing was
questionable.
The one positive
was that the Fed brought its interest rate forecast in line with the Market’s
(higher, quicker) which was initially met with rejoicing. Then investors woke
up to the fact that while they had already discounted higher rates, they hadn’t
yet priced in the likely consequence---a recession.
As you know, I
originally thought that the US could avoid a recession (because the Fed would
chicken out before any economic deterioration got too bad), then went to a
neutral stance as the data got worse. With this week’s stats which included
three negative primary indicators, I think the scale has tilted to recession
unless the Fed quickly turns tail and runs back to QE which does not seem
likely---barring a 500-1000 point flush in the S&P in the near future.
(remember the Fed cares as much about the Market as it does about the economy).
US
The May Chicago
national activity index was reported at .01 versus expectations of .32.
International
April EU YoY construction output was up 3%
versus estimates of -5%.
May German PPI came in at 1.6% versus projections of 1.5%.
Other
Update on big four economic indicators.
WTO strikes global trade deal.
The Fed
The ECB chooses inflation.
https://www.zerohedge.com/markets/morgan-stanley-so-what-does-ecb-do-next
The Bank of Japan
chooses to play with fire.
Fiscal
Policy
The menace of fiscal inflation (must read).
https://www.alt-m.org/2022/06/16/the-menace-of-fiscal-inflation/
Recession
Growing signs of a slowdown.
https://www.wsj.com/articles/u-s-jobless-claims-remained-low-last-week-11655384242
No recession yet; but the outlook is getting
grimmer.
https://www.capitalspectator.com/recession-watch-17-june-2022/#more-18195
60% of CEO’s expect a recession.
Housing market in trouble.
Investor Alert
On Friday (1) the
Dividend Growth Portfolio added to its T Rowe Price position [TROW] and (2) the
High Yield Portfolio added to its long bond holding [YYY] and initiated a one
quarter position in Enterprise Products Partners LP [EPD].
Bottom
line
Corporate bond
funds bleed billions.
https://www.ft.com/content/79ddfe64-0dcf-4abf-a7e9-05ded68929d5
Signs
of a bottom or an indication of more to come?
https://theirrelevantinvestor.com/2022/06/17/three-types-of-investors-2/
The
great paradox in the Market.
https://compoundadvisors.com/2022/the-greatest-paradox-in-markets
What
centuries old companies can teach investors.
https://novelinvestor.com/what-century-old-companies-can-teach-investors/
News on Stocks in Our Portfolios
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