Tom Essaye Quoted in Market Watch on July 6th, 2022

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Why a rally in growth stocks could signal ‘peak’ Fed hawkishness has passed

While it’s too early to declare the value outperformance ‘over,’ we do think the outperformance of tech recently is notable, because if it continues that will be a strong signal that the market is now looking past future rates hikes towards eventual rate cuts in 2023…said Tom Essaye, founder of Sevens Report Research, in a note Wednesday. Click here to read the full article.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are slightly higher despite negative COVID news from China and after British Prime Minister Boris Johnson announced he intends to resign.

COVID cases rose in Shanghai to the highest level since late May, prompting mass testing and increasing concerns of another lockdown.

Politically, British Prime Minister Boris Johnson will announce his resignation, but this shouldn’t impact stocks.

Today’s focus will be on Jobless Claims (E: 230K) and a continued slow drift higher will imply the jobs market is softening, which is needed if the Fed is going to get to “Peak Hawkishness” sooner than later.  We also have two Fed speakers, Bullard (1:00 p.m. ET) and Waller (1:00 p.m. ET) and we should expect their commentary to be hawkish (they’re two of the louder hawks on the Fed).

Have Bond Yields Peaked?

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What’s in Today’s Report:

  • Are Stocks Starting to Signal Bond Yields Have Peaked?
  • Growth Is Beginning to Outperform Value; Will It Last?
  • Oil Tumbles Through Technical Trend Support: Chart

Futures are flat while international markets were mixed overnight as investors continue to weigh recession fears against a slightly less hawkish shift in monetary policy expectations.

The 10s-2s yield curve spread notably inverted overnight as the odds of a recession in the quarters ahead continue to rise.

Economically, Eurozone Retail Sales edged up just 0.2% vs. (E) 0.4% in May which was the latest data point to show a slowdown in consumer spending amid high inflation, further compounding worries about global growth.

Looking into today’s session, there is one Fed speaker ahead of the bell (Williams at 9:00 a.m. ET) and the focus will be on economic data with the ISM Services Index (E: 54.8) and JOLTS (E: 11.250M) both due out shortly after the open.

The market will want to see a continued moderation in growth to show the Fed’s policy actions are working to slow demand, but not too weak to suggest we are quickly fading into a recession.

From there, the focus will shift to the release of the June FOMC Meeting Minutes at 2:00 p.m. ET as investors look for new insight into the Fed’s view of the economy and potential clues as to whether we have reached “peak hawkishness” yet, or not. If there is evidence peak hawkishness is behind us, yesterday’s risk-on money flows could continue today.

Are Stocks Pricing in an Economic Contraction?

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What’s in Today’s Report:

  • Bottom Line – Are Stocks Pricing in an Economic Contraction?
  • Weekly Economic Cheat Sheet – Is Stagflation Imminent?

Stock futures are trading modestly lower with European markets this morning as recession fears continue to weigh on sentiment.

Economically, global Composite PMI data was better than feared but broader concerns of a slowdown remain.

Today, investor focus will be on economic data early with Motor Vehicle Sales (E: 13.5M) and Factory Orders (E: 0.5%) both due out before the opening bell.

There are no Fed officials scheduled to speak today but the Treasury will hold auctions for 3-Month and 6-Month Bills at 11:30 a.m. ET which may move bond markets and ultimately move equities.

A Historical Reason to be Optimistic for the Second Half

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What’s in Today’s Report:

  • A Historical Reason to Be Optimistic for the Second Half

Futures are slightly lower following another high-profile guidance cut and more mixed economic and inflation data.

Micron (MU) materially cut forward guidance, sighting a steep drop in demand at the end of the second quarter and becoming the latest company to warn of deteriorating business conditions.

Economic and inflation data was mixed as EU headline HICP (their CPI) was hotter than expected but Core HICP underwhelmed, while the EU and UK final manufacturing PMIs reflected the slowing growth sweeping the globe.

Today’s focus will be on the ISM Manufacturing Index (E: 55.0) and the key here is moderation – markets need to see a slowing of growth but not a dramatic collapse.  If we see moderation, stocks can rally to start the second half.