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A Critical Week for Stocks

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What’s in Today’s Report:

  • A Critical Week for Stocks
  • Weekly Market Preview:  Will the Fed confirm smaller rate hikes in the months ahead?
  • Weekly Economic Cheat Sheet:  Is the U.S. economy quickly losing momentum?

Futures are modestly lower following disappointing inflation data and as Russia suspended grain shipments from Crimea.

EU HICP (their CPI) ran hotter than expected, rising 10.7% vs. (E) 10.2% y/y while Core HICP rose 5.0% vs. (E) 4.8%, again showing that inflation pressures are not easing.

Russia suspended grain shipments in response to rocket attacks on Crimea, sending wheat prices sharply higher which will add to inflation pressures.

Today there are no economic reports but there are some notable earnings, especially from the semi-conductor companies and some companies we’re watching include:  ON ($1.31), NXPI ($3.62), CAR ($14.80).

A Tale of Two Markets?

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What’s in Today’s Report:

  • A Tale of Two Markets?

Futures are moderately lower following another disappointing night of earnings.

AMZN became the latest mega-cap tech stock to miss earnings and the stock fell more than 10% after hours.  AAPL posted “ok” results and rose 1% overnight.

Economically, the Italian CPI was hotter than expected (11.9% vs. (E) 9.7% yoy) as inflation remains sticky in the EU.

Focus today will be on inflation data, specifically the Core PCE Price Index (0.5% m/m, 5.2% y/y).  If this number comes in under expectations, that’ll be a mild positive for markets.  Also on the inflation front, the Employment Cost Index (E: 1.2% q/q, 5.0% y/y) will be closely watched by the Fed, while the University of Michigan Five Year Inflation Expectations will be released inside of the Consumer Sentiment report (E: 59.7).  If those five-year expectations can drop further below 3%, that will be a positive for markets.

Other notable releases today include Pending Home Sales Index (E: -3.8%) and a few notable earnings results:  XOM ($3.88), CVX ($5.02), CL ($0.74).

Is a Dovish Hike the Same as a Fed Pivot? No.

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What’s in Today’s Report:

  • Is a Dovish Hike the same as a Fed Pivot?  No.  Here’s Why.
  • EIA Update and Oil Analysis

Futures are little changed as rising hope of smaller than expected future rate hikes is being offset by ugly tech earnings.

Meta (FB) missed earnings and posted underwhelming guidance and the stock fell nearly 20% after hours, continuing this week’s trend of disappointing tech earnings.

Today will be a busy day of earnings and economic data.  The most important events of the day will come after the close via the AAPL ($1.26), AMZN ($0.22), INTC ($0.34) earnings, and given the disappointing tech earnings so far this week, the market will need solid numbers today.

Outside of those earnings, other key events today include the ECB Rate Decision (E: 75 bps hike), Durable Goods Orders (E: 0.6%), Jobless Claims (E: 223K) and Preliminary Q3 GDP (E: 2.3%) and the market will be looking for “just right” outcomes from each (an ECB that’s not too hawkish, and U.S. economic data that’s not too good or not too bad).

Incremental Positive Developments

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What’s in Today’s Report:

  • Bottom Line – Incremental Positive Developments, But Not Enough for a Bottom
  • Industrial Production Takeaways
  • Chart: 5-Yr Breakevens Continue to Trend Lower Amid Confidence in the Fed
  • Housing Market Index Underscores Cooling Real Estate Market

Futures are slightly higher in more cautious trade this morning as strong earnings from NFLX (+14%)  and UAL (+3%) are helping offset hot inflation data overseas.

UK CPI rose 0.2% to 10.1% vs. (E) 10.0%, revisiting a 40-year high which is bringing inflation back into focus today.

From a catalyst standpoint, there is one economic report to watch today: Housing Starts (1.475M), and two Fed speakers to watch: Kashkari (1:00 p.m. ET) and Evans (6:30 p.m. ET).

There is also a 20-Yr Treasury Bond Auction at 1:00 p.m. ET. If yields rise in the wake of the auction, that could once again weigh on equities.

Finally, earnings continue with: ALLY ($1.73), PG ($1.55), CFG ($1.21), and WGO ($2.99) reporting ahead of the bell, and TSLA ($1.01), IBM ($1.78), AA ($0.09), and PPG ($1.67) releasing their results after the bell.

Bottom line, there have been some incremental fundamental positives that have helped support the relief rally in stocks this week, and if fixed-income markets can remain orderly and earnings continue to surprise to the upside, the S&P 500 could continue towards 3,800 or beyond today.

Tom Essaye Quoted in Forbes on October 17th, 2022

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Yet Another Rollercoaster Week For Stocks On Deck: Dow Jumps 550 Points

Inflation cooling is the “key to market stabilization,” Sevens Report analyst Tom Essaye wrote in a Monday note, pointing out that the Federal Reserve and other central banks will not ease their monetary policy until there’s “conclusive” proof of inflation receding. Click here to read the full article.

Is the UK Fiscal Crisis Over?

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What’s in Today’s Report:

  • Is the U.K. Fiscal Crisis Over? (If So, What Does It Mean for Markets?)
  • Empire State Manufacturing Index Takeaways

U.S. equity futures are up more than 1% in sympathy with EU markets following mixed messages about BOE policy.

An FT article overnight said the BOE would delay QT plans further in an attempt to insure stability in U.K. markets which fueled a continued rebound in risk assets, however, the BOE later said the report was “inaccurate” which has seen some of those pre-market moves unwind.

Looking into today’s session, there are two economic reports to watch: Industrial Production (E: 0.1%) and the Housing Market Index (E: 44) while there are two Fed officials scheduled to speak: Bostic (2:00 p.m. ET) and Kashkari (5:30 p.m. ET).

Earnings season will continue to pick up today with GS ($7.47), JNJ ($2.49), and LMT ($6.60) reporting ahead of the bell while NFLX ($2.11), UAL ($2.21), and JBHT ($2.46) releasing results after the close.

Bottom line, risk assets remain buoyant following last week’s volatility, and as long as fixed-income markets continue to stabilize and earnings do not materially disappoint, the relief rally that stocks enjoyed yesterday should be able to extend higher today.

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

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S&P 500, Nasdaq Hit New Lows After Release of Fed Minutes

“I don’t think there’s anything in here [minutes] that changes the outlook,” said Sevens Report’s Tom Essaye. Click here to read the full article.

What Yesterday’s Rebound Means for Markets

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What’s in Today’s Report:

  • Five Reasons Stocks Rallied Yesterday
  • What the Rebound Means for Markets

Futures are slightly higher as markets digest Thursday’s rebound amidst more positive news from the UK.

Support for the Truss spending/tax cut plan has totally eroded and markets are hopeful the plan will be scrapped entirely, and that’s helping global bond yields fall.

Today there are two notable economic reports, Retail Sales (E: 0.2%) and University of Michigan Consumer Sentiment (E: 58.8), but the key for markets will be the inflation expectations within Consumer Sentiment and if the five-year inflation expectations fall further below 3.0%, that’ll be a positive for markets.  We also get two Fed speakers, George (10:00 a.m. ET) and Cook (10:30 a.m. ET) but we don’t expect them to move markets.

Earnings season also unofficially starts today and key reports to watch include: JPM ($2.97), MS ($1.51), C ($1.55), WFC ($1.09), PNC ($3.66), USB ($1.17) and FRC ($2.19).  If results are better than expected, that can extend Thursday’s rebound.

VIX History and the Current Bear Market

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What’s in Today’s Report:

  • A Look at VIX History and the Current Bear Market
  • Chart: 30-Yr Treasury Bonds Fall to New Lows

Stock futures are testing the 2022 lows this morning as global bond yields push multi-year highs amid renewed turmoil in the U.K.’s government bond market.

The BOE expanded its emergency bond-buying program overnight after Gilt yields spiked higher, with officials warning that market dysfunction is threatening the U.K.’s financial stability.

Economically, the NFIB Small Business Optimism Index came in at  92.1 vs. (E) 91.5 for September.

There are no additional economic reports today but there are two Fed officials scheduled to speak: Harker (11:30 a.m. ET) and Mester (12:00 p.m. ET).

Looking back to the bond markets, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the results are weak, sending yields higher, that would further pressure stocks today.

Bottom line is, turmoil in the U.K. Gilts market is once again sending global yields higher and weighing on risk assets and if we don’t see bond markets stabilize this morning, then expect stocks and other risk assets to remain under pressure today.

Tom Essaye Quoted in S&P Global Market Intelligence on October 7th, 2022

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US job growth slows in September as labor market cools

“This just reinforces to the Fed that they have to stay the course, there’s nothing in this report that will make the Fed think: ‘Oh gee, we need to alter our plan.” said Tom Essaye, a trader and publisher of The Sevens Report. Click here to read the full article.