Following Thursday’s GDP print of -0.9%, the US is in a recession by the usual definition of two consecutive quarters of GDP contraction. The inventory market, nevertheless, is unbothered, rallying on the information.
The “official” forecasts for Q2 GDP had been -0.5%, whereas it got here in at -0.9%. That the market rallied on this tells me it was anticipating a far worse GDP print and a few cash got here off the sidelines serving as a reduction rally.
The Technical View
The inventory market simply had its greatest month in almost two years in July, a month stuffed with scary financial knowledge the place we “formally” reached recession territory. The Harris Kupperman quote “should you don’t have an inflection level, you’re only a slave to month-to-month knowledge” can’t ring extra true proper now.
The value motion within the S&P 500 has shattered the months-long downtrend that began in March. After a couple of weeks of consolidation, the market made its thoughts as much as rally decisively upward.
We’re starting to see the skeleton of an uptrend kind, as you may see by the upper low and better excessive established in the previous couple of weeks marked on the chart:
Price mentioning is the chance urge for food of buyers this week. Whereas the market aggressively rallied, defensive shares nonetheless outperformed extra risk-on shares. I symbolize this utilizing the unfold between the ARK Innovation ETF and the utilities sector:
On the power entrance, whereas crude oil remains to be in consolidation, power equities, represented by the XLE ETF, rallied laborious this week, up 9.7% after a tricky couple of months:
Probably the most inflationary fairness sector rallying laborious this week can’t make the Fed be ok with their 75bps hike.
Whereas the downtrend in crude oil appears to be shedding steam, it stays susceptible to vital volatility ought to it breakdown beneath the well-respected a number of month vary:
Federal Reserve Watch
The Fed hiked charges 75 foundation factors on Wednesday, which was in line with the market’s expectations.
Crucially, Powell sees inflation as being too excessive and the labor market as tight–nothing new there. However following that, he mentioned “one other unusually massive improve might be applicable on the subsequent assembly.”
As a result of there’s no Fed assembly in August, the Fed could have further time to smell out how their charge hikes are taking part in out within the economic system, and if inflation exhibits any signal of cooling down.
Presently, the market is pricing in a 50bp hike for the September assembly, with a 30% probability of one other 75bp hike.
Some attention-grabbing inflationary knowledge adopted the Fed assembly, just like the Employment Value Index for Q2 coming in scorching at 1.3%, and now many are making the remark that the Fed would have hiked 100 foundation factors if the assembly was only a few days sooner or later.
However in the identical breath, many predict a pivot again to accommodative coverage because the recession ache units in and the economic system slows down. And the Eurodollar market, a proxy for Fed funds, is pricing on this pivot:
Chart of the Week
Everyone loves a pleasant zoomed out parabolic chart. Immediately’s is German meals.
Final Week’s Information
- US GDP declined 0.9% vs 0.5% anticipated. The inventory market rallied on the information
- The US enters a recession following two consecutive quarters of GDP contraction
- The Federal Reserve hiked charges 75 foundation factors, in line with market expectations
- July was the most effective month in almost two years for the inventory market
- Charles Schwab (SCHW) to record a crypto ETF on the NYSE subsequent week
- SEC provides Alibaba (BABA) to record of US-listed Chinese language companies going through delisting
- Amazon (AMZN) beats earnings, with AWS serving as a spotlight
- Chipotle (CMG) inventory rockets on earnings as the corporate exhibits their pricing energy
- Alphabet (GOOG) narrowly misses estimates and warns investor of powerful comps, however the inventory nonetheless rose
- Meta (META) misses earnings, posts first YoY income decline. Additionally rose the worth of their Meta Quest VR headsets by $100
- Walmart (WMT) lower revenue outlook and the inventory declined roughly 8%
- The SEC remains to be investigating Tesla (TSLA) relating to Elon Musk’s “going personal” tweets
- Elon Musk thinks inflation has peaked
- US Senators Pat Toomey and Kyrsten Sinema launched a invoice to exempt small crypto transactions (<$50) from capital good points taxes
Upcoming Catalysts
Basic/no particular date:
- Charles Schwab issuing a crypto ETF on the NYSE subsequent week
Monday, August 1:
- Activision (ATVI) within the midst of being acquired by Microsoft (MSFT) is reporting earnings.
Tuesday, August 2:
- PayPal (PYPL) reviews earnings. The inventory has been destroyed in 2022, down over 70% from highs. The choices market is pricing in a double digit transfer on earnings.
Thursday, August 4:
- Tesla (TSLA) shareholder assembly
Upcoming Earnings
We’re about midway by earnings season and 74% of S&P 500 parts which have reported earnings already beat EPS expectations, roughly in line with Q1’s studying of 76%. Nevertheless, solely 60% of parts beat income expectations, the worst share since Q1 2020.
Monday, August 1:
- Activision Blizzard (ATVI)
- HSBC (HSBC)
- Credit score Acceptance Corp (CACC)
- Builders FirstSource (BLDR)
- Jacobs (J)
- Kellogg (Ok)
- CNA Monetary (CNA)
- Aflac (AFL)
- DaVita (DVA)
- Mosaic (MOS)
- Devon Vitality (DVN)
- Avis Finances Group (CAR)
- CVR Vitality (CVI)
- Diamondback Vitality (FANG)
- Onsemi (ON)
Tuesday, August 2:
- Starbucks (SBUX)
- PayPal (PYPL)
- Gilead Sciences (GILD)
- Occidental Petroleum (OXY)
- Superior Micro Gadgets (AMD)
- Herbalife (HLF)
- Digital Arts (EA)
- Airbnb (ABNB)
- MicroStrategy (MSTR)
- BP (BP)
- JetBlue (JBLU)
- Uber (UBER)
- Molson Coors (TAP)
- Marriott (MAR)
- KKR (KKR)
- Zebra Applied sciences (ZBRA)
- Ferrari (RACE)
- Worldwide Recreation Know-how (IGT)
- S&P World (SPGI)
- Marathon Petroleum (MPC)
- Caterpillar (CAT)
- Cummins (CMI)
- Eaton (ETN)
- Lear (LEA)
- DuPont (DD)
Wednesday, August 3:
- CVS Well being (CVS)
- McKesson (MCK)
- Metlife (MET)
- Vitality Switch (ET)
- AmerisourceBergen (ABC)
- Allstate (ALL)
- DISH Community (DISH)
- Sunoco (SUN)
- Moderna (MRNA)
- DXC Know-how (DXC)
- Trane Applied sciences (TT)
- Brookfield Infrastruture (BIP)
- Altice USA (ATUS)
- MGM Resorts (MGM)
- Yum Manufacturers (YUM)
- Underneath Armour (UAA)
- Western Union (WU)
- Robinhood (HOOD)
- New York Instances (NYT)
- Enterprise Merchandise (EPD)
- Exelon (EXC)
- CDW (CDW)
- Regeneron (REGN)
Thursday, August 4:
- Cigna (CI)
- Alibaba (BABA)
- Block (SQ)
- Monster Beverage (MNST)
- Restaurant Manufacturers (QSR)
- Apollo World Administration (APO)
- Zillow Group (ZG)
- DoorDash (DASH)
- Opendoor (OPEN)
- Embraer (ERJ)
- Public Storage (PSA)
- Crocs (CROX)
- Carvana (CVNA)
- Rocket (RKT)
- IntercontinentalExchange (ICE)
- Expedia (EXPE)
- PENN Nationwide Gaming (PENN)
- Parker Hannifan (PH)
- Wayfair (W)
- ConocoPhilips (COP)
- Nutrien (NTR)
- Arrow Electronics (ARW)
- Eli Lilly (LLY)
- Amgen (AMGN)
- CBRE (CBRE)
- Duke Vitality (DUK)
- NRG Vitality (NRG)
- XPO Logistics (XPO)
Friday, August 5:
- Western Digital (WDC)
- EOG Sources (EOG)
- Qurate Retail (QRTEA)
- Telus (TU)
- World Companions (GLP)
- Adient (ANDT)
- Fluor (FLR)
- Goodyear Tire (GT)
- AMC Networks (AMCX)
- DraftKings (DKNG)
Upcoming Financial Information
Between GDP and the Fed assembly final week, count on a much less risky and action-packed coming week, though we do hear from the ISM with their Report on Enterprise, in addition to nonfarm payrolls Friday.
Monday, August 1:
- ISM Manufacturing Index
- S&P US manufacturing PMI
Tuesday, August 2:
Wednesday, August 3:
- S&P US providers PMI
- ISM providers index
Thursday, August 4:
- Preliminary and persevering with jobless claims
- Commerce deficit
Friday, August 5:
