Inflation Hot, Economic Data Rebounds, but Fed’s Bostic Steals the Show (Market Recap July 15)
Indices
Dow 31,288 (50) or (0.15%)
Nasdaq 11,452 (183) or (1.5%)
S&P 3,863 (36) or (0.92%)
USD10Y 2.93% (17.1bp) or (5.5%)
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Inflation Hot
As expected, the June Consumer Price Index (CPI) came in searing hot on Wednesday. June headline CPI printed at +9.1% year over year (YoY), the highest reading since November 1981. Month over month (MoM) CPI was +1.3% vs expectations of +1.1%. There was a small glimmer of good news in that the June Core CPI was down YoY to +5.9% vs last month’s +6.0%. However, Core CPI MoM increased to +0.7% vs last month’s +0.5% increase. As a result, there was growing consensus that instead of a 75bp hike at the Fed meeting later this month, that the Fed would raise rates by 100bp. The likelihood of that outcome fell with comments from the Fed later in the week (detailed below).
Economic Data Rebounds
Despite the ongoing inflation concerns and a continued rise in initial jobless claims, it was a decent week for economic data. On Friday, June Retail Sales staged a huge reversal from last month’s desultory results, posting a +1.0% increase month over month. June Empire State Manufacturing also bounced back strongly after several poor months and the first look at July Consumer Sentiment improved month over month as well.
Earnings were a mixed bag with Pepsi (PEP), Taiwan Semiconductor (TSM) and Citigroup (C) posting very good results, Delta Air (DAL), Wells Fargo (WFC) delivering mixed results, and JPMorgan Chase (JPM), and Morgan Stanley (MS) disappointing the markets.
Crude oil fell precipitously last week on continued concerns surrounding Chinese Covid related lockdowns, overall demand, rate hikes, and inventory builds. The strengthening dollar, which is used for pricing global crude, has also dampened demand as it makes it more expensive for foreign purchasers of the commodity. WTI (West Texas Intermediate) Crude ended the week at $97.57/bbl, down 6.1% from $103.99/bbl at the beginning of the week.
Atlanta Fed President Bostic Steals the Show
On Friday, Atlanta Federal Reserve President Raphael Bostic suggested he was not in favor of a “drastic” move higher with regard to interest rate hikes. The market seemed to interpret this as removing the possibility of a 100bp hike which had become a growing narrative after the hot CPI number received this week. Bostic went on to say that “moving too dramatically will undermine a lot of the other things working well (the economy).” His comments, on top of similar comments from Fed President Christopher Waller on Thursday, were the main drivers of Friday’s rally (more so than the bank earnings or economic data as good as those were).
Next Week
The focus will return to earnings next week although there will be a few economic data points released prior to the Fed’s meeting on July 26-27.
Economic Calendar
- Monday – Earnings: Bank of America (BAC), International Business Machines (IBM), Goldman Sachs (GS), Charles Schwab (SCHW).
- Tuesday – Earnings: Johnson and Johnson (JNJ), Netflix (NFLX).
- Wednesday – June Existing Home Sales. Earnings: Tesla (TSLA), United Airlines (UAL)
- Thursday – Initial Jobless Claims, June Leading Economic Indicators, July Philadelphia Federal Manufacturing Index. Earnings: American Airlines (AAL) and Snap (SNAP).
- Friday – July S&P Global U.S. Manufacturing and Services PMI (flash). Earnings: American Express (AXP).
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July 15 Daily Trading Recap…
Monday – Dow (215) to 31,173, Nasdaq (264) to 11,371, S&P (46) to 3,853, USD10Y (11.0bp) to 2.991%.
Tuesday – Dow (192) to 30,981, Nasdaq (107) to 11,264, S&P (35) to 3,818, USD10Y (3.3bp) to 2.958%.
- All eleven S&P sectors traded down today, led lower by Energy, Technology, and Health Care.
- Crude fell precipitously, down more than 7% to close at $95.07/bbl on inventory builds and demand concerns.
- Pepsi (PEP) beat top and bottom-line estimates and raised their full year forecast.
- Twitter (TWTR) filed suit against Elon Musk to enforce their sale agreement for $54.20/share. TWTR closed today at $34.06/share.
Wednesday – Dow (209) to 30,772, Nasdaq (10) to 11,254, S&P (17) to 3,801, USD10Y (5.4bp) to 2.904%.
- June headline CPI printed at +9.1% YoY, the highest reading since November 1981. MoM CPI was +1.3% vs expectations of +1.1%.
- June Core CPI was down YoY to +5.9% vs last month’s +6.0%. However, Core CPI MoM increased to +0.7% vs last month’s +0.5% increase.
- Delta Airlines (DAL) beat revenues, missed earnings, and traded down more than 4%.
Thursday – Dow (142) to 30,630, Nasdaq +3 to 11,251, S&P (11) to 3,790, USD10Y +5.6bp to 2.96%.
- Eight of eleven S&P sectors traded down today, led lower by Financials, Energy, and Materials.
- Jobless claims printed at 244,000 claims vs 234,000 expected and last week’s unrevised 235,000 print. Today’s number was the highest since November 2021. Continuing claims fell to 1.331 million.
- Earnings: JPMorgan Chase (JPM) missed both top and bottom-line estimates and suspended its stock buyback program. Morgan Stanley (MS) also missed both top and bottom-line estimates. Taiwan Semiconductor (TSM) beat both top and bottom-line forecasts and raised their revenue expectations for 2022.
Friday – Dow +658 to 31,288, Nasdaq +201 to 11,452, S&P +72 to 3,863, USD10Y (3.0bp) to 2.93%.
- All eleven S&P sectors traded higher led by Financials, Healthcare, and Communication Services.
- June Retail Sales had a huge turnaround from last month, posting a +1.0% increase vs last month’s -0.1% decline.
- July Empire State Manufacturing also rebounded to 11.1 vs last month’s -1.2 print.
- July University of Michigan Consumer Sentiment (prelim) improved to 51.1 vs last month’s 50 number.
- Earnings: Wells Fargo (WFC) delivered a mixed quarter, increased bad loan reserves, and still somehow traded up 6.17%. Citigroup (C) beat top and bottom-line estimates and traded up 13%.
If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.
Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.