Inventory Market Overview for the Week of July 18, 2022

This previous week we acquired new red-hot CPI numbers, additional drama within the Elon Musk and Twitter saga, and the beginning of earnings season.

Let’s have a look at the technical image in main indices.

The downtrend sample within the S&P 500 is beneath risk proper now, as a minor decrease excessive (crimson arrow) was fashioned. On the time of writing late Thursday, it’s testing that greater low once more. A breakdown by means of the upper low would make it extremely possible that the earlier swing low (black arrow) is examined, if not damaged by means of completely, to proceed the sturdy downtrend.

With the specter of a recession looming, the Fed possible climbing 100bps this month, and a record-high CPI print this week, the information is fairly unfavourable, but the market remains to be having bother forming a brand new low. It feels like a number of provide is being soaked up within the small multi-week vary.

Power is without doubt one of the most important items to the financial system proper now. It’s a major driver of inflation and considerably disrupts financial development and shopper disposable revenue. Within the final month, vitality commodities like pure gasoline and crude oil have taken a massacre, together with their fairness counterparts.

This week was fascinating for the truth that pure gasoline futures rose 10% whereas crude oil futures declined 8%:

CPI

June’s CPI was 9.1%. Ever since Might’s scorching inflation print, tons of merchants and analysts have been calling for peak inflation and anticipating June’s numbers to return in meaningfully decrease. There are a couple of factors to notice from this.

This ‘peak inflation’ narrative has been dominant within the markets for a couple of months, and to take some indications from market pricing, that makes full sense.

The 10-year inflation breakeven price, which is the market’s projection of future inflation, has been on the decline since April:

Moreover, the uncooked commodities, that are main drivers of inflation, have additionally taken a massacre during the last month, as you may see beneath within the Bloomberg Commodity Index:

With vitality commodities being such a pivotal element to inflation, one have a look at crude oil’s latest value motion tells you that the ‘peak inflation’ fellas might need some extent:

The market’s response to this inflation print was telling too. Whereas S&P futures initially offered off quickly, there was comparatively little follow-through. As a substitute, the S&P frequently tried and didn’t rally earlier than testing the lows and bouncing upwards.

Provided that the market was anticipating a draw back shock, you’d anticipate a extra dramatic response. A part of that is perhaps all of the prepping that the White Home did to get forward of the report. The market was prepared for a scorching report and had ample time for it to sink in.

Federal Reserve Watch

Jerome Powell will communicate on the subsequent Fed assembly on July 27. The stress of the recent CPI and unexpectedly sturdy jobs report final week put stress on the Fed to hike charges quicker.

Earlier within the week, the bulk (66%) of merchants have been anticipating the Fed to hike 100 foundation factors, in response to CME FedWatch. Nonetheless, as a couple of regional Fed Presidents got here out in help of a 75 foundation level hike, the market has corrected a bit, with present indications placing the chances at 57% for a 100bp hike and 42% for 75bps.

Final Week’s Information

The Euro and US Greenback reached 1:1 parity for the primary time since 2002. Fairly good time for a Europe journey when you’ve been planning it.
The Elon Musk and Twitter drama continues. Twitter sued Elon Musk in Delaware courtroom, and the criticism is fairly hilarious. Activist brief vendor Hindenburg took a considerably lengthy place in $TWTR, which juiced the inventory greater.
Hashish shares like Tilray (TLRY) are leaping on the information that Senate Democrats are introducing a federal marijuana legalization invoice subsequent week. The hashish sector loves these kind of speculative catalysts, so be looking out for a rally.
Activist hedge fund Elliot Administration took a >9% stake in Pinterest (PINS), sending the refill 25%.
The pinnacle of AI and Autopilot at Tesla left the corporate.

Upcoming Catalysts

The Senate Democrats are introducing the Federal marijuana legalization invoice subsequent week. Shares in play:
Earnings season is in full swing

Upcoming Earnings Reviews

Earnings season is upon us, and tons of huge caps are reporting this week, heavy in financials and telecoms.

Most earnings seasons are marked by easy-to-beat analyst forecasts, that means firms usually beat expectations as long as operations are going as anticipated.

However this earnings season is marked by a collection of roadblocks, together with excessive inflation, rising rates of interest, low shopper confidence, and provide chain constraints. Whereas a few of these have been elements in previous earnings seasons, this one feels completely different.

The market may be very a lot at a turning level from a basic, sentiment, and technical perspective, and a barrage of bearish reviews in all probability means a major draw back for the S&P 500 from right here.

Second quarter forecasts have barely budged to mirror the altering actuality of the financial system, as earnings are anticipated to develop at 5.7%. It is a issue that many merchants have identified currently, as if the internals at these firms are as dangerous because the inventory market and a few financial indicators are suggesting, we’re going to have an unsightly earnings season.

This week of reviews is just too massive to publish each firm reporting, we’re simply posting probably the most vital reviews.

Monday:

Financial institution of America (BAC)
IBM (IBM)
Goldman Sachs (GS)
Charles Schwab (SCHW)
Synchrony Monetary (SYF)

Tuesday:

Johnson & Johnson (JNJ)
Lockheed Martin (LMT)
Netflix (NFLX)
Novartis (NVS)
ManpowerGroup (MAN)
Halliburton (HAL)
JB Hunt Transport Companies (JBHT)
Ally Monetary (ALLY)
Hasbro (HAS)
Interactive Brokers (IBKR)
Silvergate Capital (SI)

Wednesday:

Tesla (TSLA)
Abbott (ABT)
United Airways (UAL)
Baker Hughes (BKR)
ASML (ASML)
Metal Dynamics (STLD)
Uncover Monetary Companies (DFS)

Thursday:

AT&T (T)
Domino’s Pizza (DPZ)
Snap (SNAP)
Philip Morris (PM)
Dow Chemical (DOW)
Nucor (NUE)
Vacationers (TRV)
SAP (SAP)
Capital One (COF)
American Airways (AAL)
DR Horton (DHI)
Danaher (DHR)
AutoNation (AN)
Freeport-McMoRan (FCX)
Union Pacific (UNP)
Blackstone (BX)

Friday:

Verizon (VZ)
HCA Healthcare (HCA)
American Specific (AXP)
Schlumberger (SLB)
Cleveland Cliffs (CLF)
Nextera Power Companions (NEE)

Upcoming Financial Information

Final week we acquired some vital surprises within the type of a powerful jobs report and a red-hot CPI print.

This week’s information releases are all about housing. By the top, we must always have a fairly good image of the place the shaky housing market stands.

Residence sellers have been quickly slashing their asking costs, and general housing quantity is down, in response to Redfin:

“A record-high share of residence sellers are dropping their costs after this month’s historic mortgage-rate hike put a damper on homebuyer exercise. However there are early indicators that demand is leveling off… Pending gross sales continued to fall, posting their largest decline since Might 2020”

Rising mortgage charges, decrease shopper confidence, and low shopper financial savings stay dampers on demand, however the one potential saving grace for housing is the availability chain disaster. Based on a number of homebuilding executives, homebuilders merely can not construct sufficient stock to help the demand.

Monday:

Tuesday: