Massive Rally on Recession Fears but the Bear Stalks (June 24 Market Recap)
Massive Rally on Recession Fears but the Bear Stalks.
Indices
Dow 31,500 +1,612 or +5.4%
Nasdaq 11,607 +809 or +7.5%
S&P 3,674 +237 or +6.5%
USD10Y 3.125% (11.4bp) or (3.5%)
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Massive Bear Market Relief Rally?
The market rallied on bad economic news and Fed Chair Jerome Powell’s testimony to Congress in which he admitted that while putting the economy into recession was neither necessary nor the Fed’s goal, it remained a risk as the central bank continues to try and subdue inflation with interest rate hikes. The reason for the rally despite the bleak economic data is that if the economy goes into recession or perhaps just threatens to do so, the Fed will have to ease or pause their rate hikes which is bullish for stocks. Speaking of inflation, Friday’s rally was attributed to the consumer twelve-month inflation expectation number of 5.3%, down from 5.4% earlier this month, which was buried inside the worst Consumer Sentiment print in history. Has the inflation worm begun to turn? Thursday’s Core PCE Inflation number will be another important data point to answer this question.
Economic Data Last Week
All the economic data is still slowing (apart from May New Home Sales) thus giving credence to those recession fears. This week’s tally…
- Jobless claims printed at 229,000 claims for the second consecutive week.
- Continuing claims ticked up from 1.31 million to 1.32 million.
- May Existing Home Sales fell to 5.41 million, down 3.4% from April’s 5.6 million number.
- May New Home Sales beat expectations at 696,000 annualized units vs expectations of 587,000 units and beat last month’s number of 629,000 units.
- June S&P Global U.S. Manufacturing PMI (flash) missed at 52.4 vs 56 expected and last month’s 57 number.
- June S&P Global U.S. Services PMI (flash) missed at 51.6 vs 53.3 expected and last month’s 53.4 number.
- June University of Michigan Consumer Sentiment (final) fell to an all-time low of 50.0 vs expectations of 50.2 and last month’s 50.2 number. However, there was a piece of data regarding twelve month consumer inflation expectations that fell to 5.3%. This is likely what rallied the market on Friday.
More Recession Indicators with Dr. Copper
The commodity copper is widely tracked as a leading indicator of growth or recession and thus has earned the moniker, Dr.Copper. On Thursday, Copper hit a sixteenth month low and has dropped more than 11% over the last two weeks.
Next Week
Early earnings season begins next week with various consumer companies reporting. More importantly, next week is the week of the preannouncement: when firms realize they are not going to make their numbers and announce their disappointing results prior to their official earnings release in several weeks’ time. On top of earnings and preannouncements, there is a full slate of economic data on tap this coming week: Durable Goods Orders, Pending Home Sales, Consumer Confidence, Final Q1 GDP Revision, Initial Jobless Claims, Core PCE Inflation, Chicago PMI, S&P Global and ISM U.S. Manufacturing PMIs. The highlight of the week will be Thursday’s Core PCE Inflation number, a data point very closely watched by the Fed and the markets. Will inflation finally show signs of moderating?
Economic Calendar
- Monday – May Durable Goods Orders, May Pending Home Sales. Earnings: Nike (NKE)
- Tuesday – June Consumer Confidence Index.
- Wednesday – Q1 Final GDP Revision. Earnings: General Mills (GIS), Bed Bath Beyond (BBBY)
- Thursday – Initial Jobless Claims, May Core PCE Inflation, June Chicago PMI. Earnings: Constellation Brands (STZ), Micron (MU).
- Friday – June S&P Global U.S. manufacturing PMI (final), June ISM Manufacturing Index.
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.
June 24 Daily Trading Recap…
Monday – Markets Closed in Observance of Juneteenth.
Tuesday – Dow +641 to 30,520, Nasdaq +271 to 11,069, S&P +90 to 3,764, USD10Y +6.8bp to 3.307%.
- All eleven S&P sectors traded higher today led by Energy, Consumer Discretionary, and Consumer Staples.
- May Existing Home Sales fell to 5.41 million, in line with expectations, but down 3.4% from April’s 5.6 million number.
Wednesday – Dow (47) to 30,483, Nasdaq (16) to 11,053, S&P (5) to 3,759, USD10Y (15.1bp) to 3.156%.
- Seven of eleven S&P sectors traded down today led lower by Energy, Materials and Industrials.
- WTI Crude fell 3.33% to $106.19/bbl after trading as low as $101.53 on recession fears.
- President Biden called on Congress to suspend Federal gas and diesel taxes for three months.
- Federal Reserve Chair Jerome Powell testified in front of Congress and stated that the central bank will continue to raise interest rates until it sees clear evidence of inflation slowing to its 2% target. He continued that while the bank is not trying to provoke a recession, an economic downturn is “certainly a possibility.”
Thursday – Dow +194 to 30,677, Nasdaq +179 to 11,232, S&P +35 to 3,795, USD10Y (8.8bp) to 3.068%
- Seven of eleven S&P sectors traded higher today led by defensive sectors Utilities, Healthcare, and Real Estate.
- Jobless claims printed at 229,000 claims vs 227,000 expected and last week’s slightly revised higher 231,000 print (originally 229k). Continuing claims ticked up slightly to 1.32 million.
- June S&P Global U.S. Manufacturing PMI (flash) missed at 52.4 vs 56 expected and last month’s 57 number.
- June S&P Global U.S. Services PMI (flash) missed at 51.6 vs 53.3 expected and last month’s 53.4 number.
Friday – Dow +823 to 31,500, Nasdaq +375 to 11,607, S&P +116 to 3,911, USD10Y +5.7bp to 3.125%.
- All eleven S&P sectors traded higher led by Materials, Communication Services, and Financials.
- May New Home Sales beat expectations at 696,000 annualized units sold vs expectations of 587,000 units and even beat last month’s number of 629,000 units.
- June University of Michigan Consumer Sentiment (final) fell to an all-time low of 50.0 vs expectations of 50.2 and last month’s 50.2 number. However, there was a piece of data regarding twelve month consumer inflation expectations that fell to 5.3%. This is likely what rallied the market today.
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.