Inventory Market Overview for the Week of June 20, 2022

This week is a shortened buying and selling with markets closed Monday, June 20 for the Juneteenth vacation.

There’s no different method to put it: the worth motion within the US inventory market this week was ugly, with the S&P 500 dropping over 5% on the week, formally placing the index in “bear market” territory, that means the index dropped 20% from latest highs.

The reflation commodity commerce which has proven some adverse correlation to inventory returns lately didn’t fare any higher both, with practically each main commodity contract declining on the week. Right here’s the efficiency breakdown of all main futures contracts over the previous week:

You had nearly nowhere to cover final week, as all sectors and practically each giant cap inventory was extremely correlated with the broad market. Have a look at the massacre amongst S&P 500 constituents, practically all pink apart from these few exceptions the place a big catalyst was in play:

And the worth motion within the S&P actually leaves little room for optimism, not less than from the pattern/momentum perspective. The index made important new lows on depraved momentum and closed the week inside spitting distance of the lows.

At present the dominant sample within the S&P is clearly a downtrend sample, one which has gained important momentum all through the week.

Onerous to make a bullish argument as of now:

With that mentioned, inventory indexes are very imply reverting in nature and have a tendency to make their worth strikes in short-term bursts of momentum, solely to retrace portion of the transfer. So after all, shorting on the lows right here is questionable in concept, as is shopping for. Sort of in “no man’s land” in the intervening time. Once more, that is coming at issues from a pattern buying and selling perspective.

There’s additionally an absolute massacre in crypto. Not solely are the first cash like Bitcoin and Ethereum down over 50% from their April highs, however there’s a liquidity drawback. Basically, the worth of crypto went down too rapidly and triggered liquidations in overleveraged merchants and market contributors. The value went down too rapidly for a lot of lenders to recoup their collateral, resulting in liquidity issues from the large lenders, which created a contagion impact.

As soon as crypto powerhouses, companies like Three Arrows Capital and Celsius Networks may not exist in every week’s time.

It’s onerous to estimate the impact this devastating crypto crash can have on the financial system, as crypto property and tech high-growth shares are an enormous supply of millennial and gen-Z wealth. With the housing market already weak, it’s onerous to think about that these losses in wealth received’t dogpile on the already current issues in US housing.

Issues are even unhealthy in vitality land this week too, actually leaving buyers with nowhere to cover. The vitality commerce has served as a hedge towards the remainder of the fairness market up till now, typically displaying a adverse correlation to the S&P and Nasdaq. Not this week.

Right here’s crude oil and the XLE ETF:

Final Week’s Information

When reflecting on the occasions of the previous week, I take into consideration the Stalin quote “there are many years when nothing occurs; and there are weeks when many years occur.” Whereas final week wasn’t fairly that dramatic, it was like a yr’s price of stories all within the area of some days.

As a result of rather a lot went down final week, we’ll stick with essentially the most essential data wanted to interpret final week’s motion in markets:

One of many largest crypto hedge funds, Three Arrows Capital (3AC) mainly blew up, contributing to the contagion of liquidations throughout the crypto area. By the tip of the week, Bitcoin was sitting at $20Okay in comparison with a excessive of $48Okay in April. WSJ stories that 3AC is looking for a bailout from bigger companies.
One other giant crypto agency, Celsius Networks, is having a liquidity disaster and so they’ve paused withdrawals for shoppers. Celsius is sort of a crypto financial institution. Customers lend the agency their crypto and obtain yield primarily based on the agency’s buying and selling and lending actions. The agency famously marketed suspiciously excessive yields for little threat.
The Federal Reserve hiked charges 75 foundation factors, of their largest charge hike since 1994. Powell’s tone indicated that he’s absolutely devoted to combating inflation, inventory market be damned. Powell teased one other giant hike for the following assembly: “from the attitude of right now, both a 50bp or a 75bp improve appears almost certainly at our subsequent assembly.”
Elon Musk spoke to Twitter’s staff about his targets to show Twitter (TWTR) right into a extra freedom of speech pleasant platform ought to his deal undergo.
There was a massacre in vitality on Friday. Pure fuel declined by over 20% and crude oil declined by about 10%. Power shares in XLE declined about 12%, and oil shares in XOP are formally in a bear market, representing a 20% peak-to-trough decline. Commodity buying and selling is hard.

Upcoming Catalysts This Week

Tuesday, June 21:

The most important SPAC deal on file is slated by. Gores Guggenheim (GGPI) is planning to merge with Polestar, an electrical car startup. The market’s response to this deal ought to function a bellwether for the market’s urge for food for high-growth, high-risk EV startups.

Thursday, June 23:

Federal Reserve Chairman Jerome Powell will testify in entrance of the Home Monetary Providers panel

Upcoming Earnings This Week

We’re listening to from just a few key dwelling builders this week, together with Lennar (LEN) and KB Houses (KBH). In latest quarters, homebuilder convention calls have been extra illuminating on the state of the housing market, the extent of demand coming from first-time homebuyers, how rising mortgage charges are affecting demand, and so forth. So look out for these as housing is a crucial piece to the buyer puzzle and has a big impact on the inventory market, if oblique.

Tuesday, June 21:

Lennar (LEN)
La-Z Boy (LZB)

Wednesday, June 22:

KB Houses (KBH)
Winnebago (WGO)

Thursday, June 23:

Darden Eating places (DRI)
FedEx (FDX)
Accenture (ACN)
FactSet (FDS)
Ceremony Help (RAD)
Smith & Wesson (SWBI)

Friday, June 24:

Upcoming Economics Knowledge This Week

The week earlier than final we acquired a barrage of bearish financial knowledge. The common worth of gasoline within the US crossed the $5.00/gallon mark, client sentiment reached a historic low, and inflation hit a 40-year excessive. This all comes amid a quickly declining inventory market and a large number of a provide chain.

The Federal Reserve put the harm on additional this previous week by mountain climbing rates of interest by 75 foundation factors, the very best since 1994, and teasing one other giant hike for the following assembly. Powell type of “crossed the Rubicon” right here and doubled down on being actually hawkish and reigning in inflation. If we’re to take the Fed at their phrase, they’re prepared to sacrifice the inventory market and even unemployment to get inflation beneath management. Controlling the price of borrowing by rates of interest is an efficient mechanism of doing so.

This coming week we’ll be taught rather a lot about housing. Not solely will we hear from Lennar and KB Houses by their earnings stories this week, however we additionally get contemporary current dwelling gross sales and new dwelling gross sales numbers.

Tuesday, June 21:

Wednesday, June 22: