The Morning Call
7/10/23
The
Market
Technical
The S&P was
down last week. Couple of observations: (1) it closed that huge gap up open
from the prior week, (2) in the process made a big gap down open and then
closed it----meaning there is no magnetic pull from gap opens remaining. However,
that kind of volatility tends to reflect extreme investor uncertainty, which
should not come as too big a surprise given the sharp divisions in economist/strategist
ranks. While the trend is up until is not, I think that there is just too much uncertainty
(or a growing unease that the Fed may indeed be willing to stay tight till it
hits its 2% inflation goal) to be getting bulled up.
Just how narrow is
this latest advance?
https://www.ft.com/content/06a485d9-c880-4097-bb99-02ab98697d1a
Price matters.
https://www.zerohedge.com/the-market-ear/faide
S&P breaks 21
day moving average.
https://www.zerohedge.com/the-market-ear/spx-breaking-21-day-moving-average
TLT took a
shellacking last week. It tried and failed to reset both DMAs from resistance
to support (both now still resistance) and finished the week right on the lower
boundary of its intermediate term downtrend. That should prompt a bounce but overall,
the pin action is not great and seems to be indicating that bond investors,
like the stock boys, may be starting to believe the Fed’s hawkish rhetoric.
GLD was flat on
the week, escaping the volatility of the stock and bond markets. However, it maintained its current short-term
trend---to the downside which would support the notion of higher interest rates.
That said, ‘it remains in intermediate and long-term uptrends. Although support is a
long way away; so, there is lots of room for more downside before any real technical
damage is done.’
The dollar failed to successfully challenge its
200 DMA, then got hammered on Friday. Typically, higher interest rates are a
plus for the dollar; although a recession is not. So, is UUP starting to look
through higher rates at their consequences (recession)? All we can do is wait
and see.
Friday in the
charts.
More charts to
think on.
https://www.zerohedge.com/markets/sizing-bullish-zeitgeist
Fundamental
Headlines
The
Economy
Last Week Review
Last
week’s US stats were just barely positive, though negative primary indicators
outnumbered positives two to one. Overseas, the data was massively downbeat mainly
due to the globally poor PMI data---providing further confirmation that Europe
is almost certainly in a recession with China and Japan not far behind.
The
US, on the other hand, continues to keep its head above water. I am sticking
with my recession forecast but clearly the US economy is stronger than I had expected.
One has to be pleased that economy is proving so resilient. However, with so many leading indicators
pointing to a decline while the coincident and lagging indicators say otherwise,
it is confusing as hell. And I am not the lone ranger as the erratic behavior
of the major indices testify.
The
other issue investors must deal with is, of course, inflation. And perhaps more
importantly, how the Fed perceives this problem and even more important, just
how firm is its determination to achieve its 2% target. We got the minutes from
the last FOMC meeting last week and they provided another dose of hawkish rhetoric---reiterating
that inflation remains a major concern and therefore, more rate hikes were
likely on the table.
That
said, as you know, I am quite skeptical of the Fed’s forecasting expertise and
have even less confidence in its courage to maintain a restrictive monetary
policy in the face of even the slightest hint of economic/Market turmoil.
So,
I have no great expectations that the Fed will stick to its guns in pushing
inflation back to 2%. Indeed, I believe that the only way inflation gets back
to 2% is on the back of a painful recession. But to be clear, I have no idea if
we will have a painful recession.
Longer
term, irrespective of how low inflation goes in the short term, irrespective of
whether or not we have a recession and if so, how deep it will be, we are still
faced with an economy growing at well below its historic secular rate and a
base rate of inflation above 2%.
Correcting those self-inflicted wounds won’t be easy. It will take years
of fiscal and monetary restraint to do so. And that would mean less fiscal
stimulus and interest rates staying higher for longer than many now expect---which
unfortunately is not apt to happen.
The
Economy
US
International
June Chinese YoY vehicle
sales were up 0.14% versus estimates of +18.0%; June YoY CPI was 0.0% versus
+0.2%; June YoY PPI was -5.4% versus -5.0%.
Other
Vehicle sales per capita.
The weekly leading economic index.
The
Fed
No
fan of the Fed.
https://www.zerohedge.com/political/federal-reserve-has-been-disaster-america
Fiscal
Policy
America
is living on borrowed money. The politics are a bit off, but the conclusion is right.
Recession
Mortgage rates are at the highest
level of the year.
https://www.zerohedge.com/personal-finance/mortgage-rates-soar-highest-level-year
Geopolitics
The ruling class is out of touch with
reality.
https://www.zerohedge.com/geopolitical/made-me-realize-how-out-touch-reality-west
Bottom
line
It is simply speculation.
A preview of Q2 earnings season.
Q2
Earnings Season Begins - Will It Support the Bulls? - RIA
(realinvestmentadvice.com)
News on Stocks in Our Portfolios
What
I am reading today
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