Inventory Market Overview for the Week of July 25, 2022

The tides but once more shifted within the US inventory market this previous week.

Shares rallied all week and now all of the bulls are taking a victory lap whereas the bears swear up and down that it’s a bear market rally.

Listed here are the US indices returns for the week:

S&P 500: +5.5%
NASDAQ 100: +7.23%
Dow Jones Industrial Common: +4.6%
Russell 2000: 7.6%

The Technical View: Shares

From a technical perspective, the downtrend sample within the S&P 500 is formally damaged and we’ve now entered range-bound territory.

After the current worth motion, most would count on a right away shift to an upward development, or a development reversal. However in actuality, when a development dies out as this one did (relatively than die a climactic loss of life), they have an inclination to ‘relaxation’ and commerce in a spread for a bit earlier than selecting its subsequent path.

It is a basic precept of among the most profitable merchants: that markets undergo intervals of vary growth and vary contraction. Now that the market has reached some semblance of equilibrium, not less than in comparison with current historical past, don’t be stunned to get up to a boring marketplace for the following few weeks.

As a result of bears are the loudest and most assured of their proclamations, one of many prevailing narratives is that the present bullish worth motion in inventory is a basic “bear market rally.” That might very nicely be true, however there’s just a few causes to not be offered simply but.

First off, we’re solely about 15% off all-time-highs on the present worth ranges after about seven months of downward tendencies. That’s hardly a convincing bear market and will extra precisely be referred to as an extended correction.

Moreover, when you have a look below the market’s hood, issues don’t look as unhealthy as they’re made to appear. What rallies out of a downtrend is kind of telling. Whereas through the “reflation” period of the inventory market in 2021, tons of defensive and worth shares outperformed on market rallies.

Throughout this rally, we’re seeing important outperformance from pro-cyclicals like expertise, client cyclicals, in addition to small caps displaying relative power in opposition to mega-caps as may be seen within the Russell 2000 vs. the Dow.

And the final word gauge for risk-on urge for food in equities, ARK Innovation ETF (ARKK), is displaying regular relative power to the S&P 500, which, to me, is a surefire signal that we’re not in a bear market.

The Technical View: Crude Oil

Relating to crude oil, we’re as soon as once more approaching the essential finish of the multi-month vary.

Again in June when crude examined the highest finish of this vary and tried to interrupt out, worth rejection rapidly occurred, sending the worth again within the vary and starting a month-long downtrend which remains to be underway.

Crucially, crude oil is down trending into this important backside finish of the vary, considerably elevating the percentages that the extent is damaged.

Chart of the Week: Residence Costs

Look, the housing market isn’t as sturdy because it was six months in the past. Mortgage charges are quickly climbing, there’s worth cuts throughout the board, and stock is sitting in the marketplace for much longer particularly within the beforehand sturdy markets like Austin, TX.

Nonetheless, the median US residence worth simply hit an all-time excessive. If we’re to enter a recession within the subsequent two quarters, count on rather more ache within the housing market.

Federal Reserve Watch

This coming Wednesday we get a really consequential Fed assembly. One which merchants are betting can be not less than 75 foundation factors, if not 100 foundation factors.

With just a few financial surprises in current weeks like the recent job report, the recent inflation report, and the stunning Financial institution of America card spending information, which confirmed shoppers aren’t spending like there’s a recession, there can be a lot of strain on the Fed to be much more hawkish than currently.

Powell is probably going feeling immense strain to make an announcement. To beat the market into submission with hawkishness.

However however, it comes proper as there appears to be mild on the opposite finish of the tunnel. It’s very possible that the following CPI print can be a lot decrease than the June print, given the numerous declines in commodity costs as of late. A meaningfully decrease print may give Powell the help to chill out on the speed hikes.

Presently the market is pricing in a 73% chance of a 75bp hike, and a 27% chance of a 100bp hike:

Final Week’s Information

Snap (SNAP) reported ugly earnings and the inventory dropped 27%. The corporate additionally suspended their steering. They did, nonetheless, outperform new person expectations and provoke a $500M buyback program.
As standard, the rally in hashish shares was a “promote the information” occasion, as they declined on information of laws being launched to the US Senate.
Russia and Ukraine plan to signal a deal to start out exporting grains and fertilizer out of the Black Sea once more
The choose chosen within the Twitter vs. Musk case is Kathaleen McCormick, which is notable as a result of she pressured a reluctant purchaser to shut a merger deal, a uncommon prevalence in Delaware courtroom.
Decide in Twitter/Musk case grants Twitter’s request for an expedited trial
Amazon (AMZN) is utilizing Rivian (RIVN) vans to ship packages in choose metro areas.
Russia restarts Nord Stream pipeline, fuel flows to Europe once more after a 10-day shutdown
Tech hiring pause continues this week with new pauses at Microsoft and Google
Netflix (NFLX) beats earnings and the inventory has rallied almost 30% from current lows.
Financial institution of America card spending information reveals shoppers are nonetheless aggressively spending particularly on journey.

Upcoming Earnings Subsequent Week

The inventory market was helped final week by just a few giants like Netflix (NFLX) and Tesla (TSLA) reporting optimistic earnings, which is being considered as an indicator for the remainder of the market.

To date, 70% of corporations have beat EPS expectations, which is down from 76% final quarter, nonetheless given the baked-in bearish expectations, the market appears fairly pleased with the earnings outcomes to date.

Subsequent week is the week of the FANGs. We get Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft multi function week. As well as, we get dozens and dozens of large-caps and mega-caps, with an enormous portion of the Dow 30 reporting.

Subsequent week’s studies will possible decide the path of the marketplace for the following few months.

Listed here are probably the most important earnings studies coming this week. As a result of there may be a lot reporting, we’re simply providing you with probably the most notable and doubtlessly unstable studies. Checkout an earnings calendar for a extra exhaustive checklist:

Monday, July 25: