What the Bulls Believe (Four Assumptions)

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What’s in Today’s Report:

  • Four Bullish Assumptions Currently in the Market
  • Weekly Market Preview:  All About Powell (Speech on Friday)
  • Weekly Economic Cheat Sheet:  How Solid Is the Economy?  (Important Growth Data This Week)

Futures are sharply lower as markets price in a greater chance of a hawkish speech from Fed Chair Powell this Friday.

Markets are reversing some of the “Fed Pivot” gains of the past few weeks ahead of Chair Powell’s speech in Jackson Hole on Friday, as investors fear the markets’ expectations for the Fed have become too dovish.

Economically, China cut interest rates again to stimulate the economy, although the rate cuts were small and stocks declined anyway, as the Chinese economy continues to face numerous large challenges (Zero COVID policy, drought, property market decline, etc.).

Today there are no Fed speakers and only one notable economic report, the Chicago Fed National Activity Index (E: -0.19), and as has been the case markets will want to see stability in the date to reinforce that the U.S. economy is not moving closer to stagflation.

What’s Changed With the Fed

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What’s in Today’s Report:

  • What’s Changed with the Fed (and What Hasn’t)
  • Technical Update

Futures are moderately lower following mixed economic data and after a WSJ article warned the market was underestimating Fed conviction on rate hikes.

Economically, German PPI surged 37.2% vs. (E) 30.9% y/y on exploding electricity costs while UK Retail Sales fell –3.4% vs. (E) -3.3%.  Both numbers highlight the economic challenges facing the EU and UK.

A WSJ article warned of a “reckoning” for stocks as markets think the Fed is bluffing about further hikes and that’s weighing on sentiment this morning.

Today there are no notable economic reports but there is one Fed speaker, Barkin at 9:00 a.m. ET, and if he echoes this disconnect between Fed intentions and market expectations for rates, that will further pressure stocks today.

FOMC Minutes: Not as Dovish as the Market Reaction

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What’s in Today’s Report:

  • FOMC Minutes:  Not as Dovish as the Market Reaction
  • Retail Earnings Takeaways
  • EIA and Oil Market Analysis

Futures are slightly higher on better-than-expected earnings, following an otherwise quiet night of news.

Cisco (CSCO) posted strong earnings and gave positive commentary on tech demand going forward.

Economically, EU HICP (their CPI) met expectations at 8.9% yoy and that reading means a 50 bps rate hike from the ECB is still likely in September.

Today’s focus will be on economic data, specifically the Philadelphia Fed Manufacturing Survey (E: -5.0).  If Philly Fed echoes the weak Empire Manufacturing reading and the price indices don’t decline, we’ll see stagflation concerns rise.  Other reports today include Jobless Claims (E: 265K) and Existing Home Sales (E: 4.85M) but neither should move markets.

We also get two Fed speakers, George (1:20 p.m. ET) and Kashkari (1:45 p.m. ET), and the market will be looking for any insight on a 50 bps vs. 75 bps hike in September (markets are expecting 50 bps).

What Currencies and Bonds Are Saying About the Fed

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What’s in Today’s Report:

  • Better-Than-Feared WMT and HD Earnings Drive Trading
  • Why Currency and Bond Markets Are Not Signaling a “Less Hawkish” Fed
  • Chart: S&P 500 Quietly Closes at Fresh Highs
  • Economic Takeaways: Housing Starts and Industrial Production

U.S. futures are tracking European shares lower following disappointing economic data out of the EU ahead of today’s release of the July FOMC meeting minutes.

U.K. CPI jumped to a new multi-decade high of 10.1% vs. (E) 9.8% in July while the Q2 Eurozone GDP Flash dipped to 3.9% vs. (E) 4.0%, rekindling concerns about stagflation.

Looking into today’s session, focus will be on economic data early with Retail Sales (E: 0.1%) due out before the bell as well as more retailer earnings including: TGT ($0.71), LOW ($4.63), and TJX ($0.68).

Then there is one Fed speaker, Bowman, at the open (9:30 a.m. ET) before focus will shift to the July FOMC meeting minutes which will be released at 2:00 p.m. ET.

Bottom line, the market will want to see more good earnings and guidance out of the remaining major retailers due to report quarterly results today as well as a not-as-hawkish-as-feared set of Fed minutes released this afternoon, if this latest leg higher in stocks is going to continue. Otherwise, we could be set up for a pullback into the back half of the week as stocks have become near-term overbought without any new meaningfully positive catalysts.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart
  • Takeaways From a Dismal Empire State Manufacturing Report

Futures are modestly lower this morning as investors digest more downbeat economic data and disappointing earnings out of HD ahead of the Fed Minutes tomorrow.

The German ZEW Survey’s Economic Sentiment reading was -55.2 vs. (E) -52.7, underscoring ongoing concerns about the outlook for growth in the months ahead.

Looking to today’s session, there are two economic reports to watch: Housing Starts and Permits (1.540M, 1.650M) and Industrial Production (E: 0.3%). Data has been disappointing so far this week so any positivity in the releases could help buoy equities in what has been so far a pretty quiet trading week.

There are no Fed officials scheduled to speak today but WMT ($1.60) will report earnings in the pre-market and investors will be looking for the massive retailer to reiterate guidance and meet or beat estimates to provide evidence that the consumer remains resilient in the face of extremely high inflation. Any disappointment in the quarterly results could spur volatility given the most recent leg higher in stocks leaving the market overbought.

Tom Essaye Quoted in Barron’s on August 12th, 2022

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The S&P 500 Had Its Fourth Straight Winning Week—and What Else Happened in the Stock Market Today

Data released this week suggests that inflation may have peaked, allowing the Federal Reserve to be less aggressive when boosting interest rates…Tom Essaye, founder of Sevens Report Research said Friday that the S&P 500’s current level reflects that growing sentiment. Click here to read the full article.

Did the Markets Achieve Peak Inflation & Peak Hawkishness

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What’s in Today’s Report:

  • Keys to a Bottom Update:  Did the Markets Achieve Peak Inflation & Peak Hawkishness?
  • Weekly Market Update:  Can Stocks Hold the Recent Gains?
  • Weekly Economic Cheat Sheet:  All About Growth This Week (And the Data Needs to be Solid)

Futures are modestly lower after Chinese economic data missed estimates and the Chinese central bank cut rates in response.

Chinese economic data was soft as Industrial Production (3.8% vs. (E) 4.3%) and Retail Sales (2.7% vs. (E) 4.9%) both missed estimates.  In response, China’s central bank announced a surprise 10 bps rate cut, a move that signals economic concern but also doesn’t offer a lot of help (a 10 bps cut won’t make a difference as long as “Zero COVID” is an in-force policy).

Focus today will be on the August Empire Manufacturing Survey (E: 5.0) and specifically the price index within the report.  The sharp drop in that price index kicked off the “peak inflation” rally of the last month, so markets will be looking for continued signals that growth is stable (so a solid headline reading) and inflation is falling (another drop in the price index).

We also get the July Housing Market Index (E: 55.0) and we have one Fed speaker,  Waller (10:50 a.m. ET), but they shouldn’t move markets.

What Could Send Stocks Higher from Here (Three Factors)

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What’s in Today’s Report:

  • What Could Send Stocks Higher from Here (Three Factors)

Futures are slightly higher as comments by San Francisco Fed President Daly are being interpreted as slightly dovish. San Francisco Fed President Daly spoke after the close Thursday and said that Wednesday’s CPI was a “welcome sign” that could lead to a “slowing” in the pace of rate hikes (to 50 bps in September, not 75 bps).

Economic data was better than expected as both UK and EU Industrial Production slightly beat estimates.

Today focus will be on the University of Michigan 5-Year Inflation Expectations (E: 2.9%) as that’s the first inflation reading in August, and if it drops below expectations we should see a continued tailwind on stocks.

Tom Essaye Quoted in Bolly Inside on August 9th, 2022

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US Futures Fall, Asia Stocks Face Dovish Open: Markets Roundup

The economy still has to digest all this tightening, and that will materially slow things, wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Market Multiple Table

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What’s in Today’s Report:

  • August Market Multiple Table
  • Growth and Inflation – Which One Falls Faster? (It’s an Important Question Going Forward)

Futures are modestly higher as markets digest Wednesday’s big rally and following better than expected earnings.

Disney (DIS) posted better than expected earnings driven by theme park performance and strong Disney+ subscriber numbers and that’s anecdotally adding to the idea that the economy remains resilient.

There was no notable economic data overnight and investors are looking ahead to this week’s claims data.

Today focus will be on Jobless Claims (E: 260k) and PPI (E: 0.3% m/m, 10.3% y/y) and the market will want to see continued moderation in the jobs market (so claims slowly drifting towards 300k) and for the PPI to also signal a peak in inflation pressures (so numbers that a better than expectations).  If the markets get those two readings from the data, the rally can continue.