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Tom Essaye Quoted in Business Insider on August 22nd, 2023

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Wall Street is declaring victory too early — the US is still headed for a recession

Tom Essaye, the founder of Sevens Report Research, which counts some of the biggest institutions on Wall Street among its clients, said while inflation on a year-over-year basis has come down significantly, the cumulative price increases we’ve seen since the start of the pandemic will eventually force consumers to cut back on spending.

“People get very excited about CPI and say, ‘Hey, CPI went up only 0.1% over the past month and it’s only up 3% over the past year,'” Essaye said. “Well, think about that in practical terms. If I go to buy my kids a bag of Skittles, in 2019 it cost $0.75. Now it costs $1.50. Am I supposed to get excited because next year it costs $1.55?”

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Sevens Report Analysts Quoted in Investing.com on August 21st, 2023

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Dow Jones, Nasdaq, S&P 500 weekly preview: All eyes on Nvidia and Powell

Sevens Report analysts: “The market of 2023 is being defined almost by hyperbolic extremes. We started 2023 with investors fearing a catastrophic recession, 1970s- style inflation and 1970s-style rate hikes. That hasn’t happened. But just because that didn’t happen, it doesn’t mean that: No economic slowdown will occur, inflation will magically crash to late 20-teens levels, and the Fed will suddenly turn dovish (as markets priced in at 4,600). The truth is in the middle, and that’s where we are now.”

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Sevens Report Analysts Quoted in MarketWatch on August 21st, 2023

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Oil prices settle lower to extend last week’s losses

Meanwhile, a consistent run of strong U.S. economic data has raised fears the Federal Reserve may need to push interest rates higher than previously expected and hold them there for longer than previously anticipated, while weekly government data last week showed a pullback in consumer fuel demand and a post-pandemic high in U.S. crude production, analysts at Sevens Report Research said in a note.

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What Is “R Star” and Why Is It Important?

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What’s in Today’s Report:

  • What is “R*” and Why Is It Important?
  • Palo Alto Shares Rip Higher by 15%, Sparking Tech Rally – Chart

Stock futures are higher this morning with mega-cap tech shares extending this week’s strong advance following news that SoftBank’s Arm semiconductor unit has filed for the largest U.S. IPO in 2 years after the close yesterday while traders await NVDA earnings tomorrow.

Overseas, the PBOC set the strongest yuan fixing on record overnight which has helped the currency stabilize and that is contributing to risk-on money flows this morning.

There were no other market moving headlines overnight and no notable economic reports were released.

Looking into today’s session, there is one economic report due out in the U.S. this morning: Existing Home Sales (E: 4.160 million) but it is unlikely to impact markets with traders primarily focused on tech so far this week.

There are two Fed speakers today: Barkin (7:15 a.m. ET) and Goolsbee (2:30 p.m. ET) and their commentary could move markets as markets look ahead to Fed Chair Powell’s remarks from Jackson Hole on Friday. Anything that sparks a further rise in Treasury yields could pour cold water on this week’s tech rally which is basically entirely responsible for the week-to-date gains in the broader equity markets.

Tom Essaye Quoted in Barron’s on August 15th, 2023

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Stocks Could Be Sandbagged by Rising Treasury Yields

“That’s why rising Treasury yields are a problem for stocks, because investors will rotate out of riskier equities and into less-risky bonds because the additional return in stocks isn’t worth the volatility,” argues Essaye, who believes that while the current environment makes the historical 4% risk premium unlikely, a “fair” number for 2023 is “definitely higher than 1%!”

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It’s Not How High Rates Go Anymore, It’s How Long They Stay There

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What’s in Today’s Report:

  • It’s Not How High That Matters Anymore, It’s How Long
  • Retail Sales & Empire State Manufacturing Survey Takeaways (Very Mixed Reports)
  • Chart – S&P 500 Violates 50 Day Moving Average for the First Time Since March

Stock futures are little changed this morning as new stimulus efforts by China help offset more negative global economic data and a hawkish leaning RBNZ meeting decision.

Chinese Home Prices fell -0.1% vs. (E) 0.0% prompting a cash injection and stronger currency fix by the PBOC which helped stabilize global risk assets overnight given the recent turmoil in the world’s second largest economy.

In Europe, U.K. Core CPI held steady at 6.9% vs. (E) 6.8% in July solidifying peak rate expectations of 6.0%, however bond yields are retreating modestly from the week’s highs which is helping stocks continue to stabilize today.

Looking into today’s session, we will get two economic reports this morning: Housing Starts (E: 1.455 million), Industrial Production (E: 0.3%) before focus will turn to the release of the July FOMC meeting minutes at 2:00 p.m. ET.

Bottom line, the market wants to see more “Goldilocks” data consistent with a soft economic landing and no evidence in the Fed minutes that suggests a more hawkish policy path than is currently expected (rate cuts beginning H1’24). Otherwise, volatility is likely to remain elevated with equities under pressure.

Tom Essaye Quoted in Barron’s on August 11th, 2023

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Stocks Eked Out a Very Small Gain, Snapped Their Losing Streak

“The market already assumes continued disinflation, so the fact that inflation declined modestly in July just met existing (and already priced in) expectations,” Sevens Report Research founder Tom Essaye told Barron’s. “And, much of the gains in the morning were technical, on a rebound from Wednesday’s drop and an anticipation of the CPI report. But, when it failed to provide a new, positive catalyst, we saw trade exit positions as this market needs something new and positive to rally, not just confirmation of what we already assume and have priced in.”

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What’s Causing the Increased Volatility in Stocks?

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What’s in Today’s Report:

  • What’s Causing the Increased Volatility in Stocks?
  • Weekly Market Preview:  Do the Three Pillars of the Rally Stay Intact?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week (CPI on Thursday)

Futures are rebounding modestly from last week’s declines following a quiet weekend of news and ahead of an important week of inflation data.

Economically, the only notable number was German Industrial Production, which fell more than expected (-1.5% vs. (E.) -0.5%) and again underscored growing recession risks in Europe.

Today the key economic report is the Manheim Used Vehicle Value Index (9:00 a.m. ET) as this is viewed as an anecdotal reading on inflation, and markets will want to see a further decline in car prices.

We also get Consumer Credit (E: $13.00B) and there are two Fed speakers, Harker (8:15 a.m. ET) and Bowman (8:30 a.m. ET), and markets will want to see those events reinforce the Goldilocks narrative (solid consumer spending and the Fed basically done with rate hikes).

How to Explain Inflation Base Effects to Clients and Prospects

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What’s in Today’s Report:

  • How to Explain Inflation to Clients and Prospects
  • JOLTS Return to Pre-Covid Trend Path, But Is That Enough for the Fed?
  • ISM Manufacturing Index Takeaways – Another “Goldilocks” Report
  • The Yield Curve Will Return to Zero, How It Gets There is What Matters Most (Chart)

Stock futures are trading lower with global risk assets after a U.S. credit downgrade late yesterday.

Fitch Ratings downgraded the U.S. from its top rating AAA to AA+ yesterday, citing the massive fiscal deficit, but the downgrade should not result in any forced selling of Treasuries and therefore should have a limited near-term impact on yields and markets more broadly.

Looking into today’s session, focus will be on the U.S. credit downgrade as investors digest the potential implications on fixed income markets and re-assess valuations of risk assets, but we also get the first look at July jobs data in the form of the ADP Employment Report (E: 185K) ahead of the bell. If the data comes in “too hot” or “too cold” market volatility may pick up this morning. Motor Vehicle Sales will also be released (E: 15.6 million) but that data should not move markets.

There are no Fed speakers or notable Treasury auctions today, so beyond the early jobs data investors will continue to focus on Q2 earnings season with CVS ($2.12), KHC ($0.74), and PSX ($3.54) releasing results before the open while PYPL ($1.16), QCOM ($1.63) and MET ($1.85) will report after the close.

 

Sevens Report Technicals – Five Recessionary Bear Market Signals to Watch

The biggest risk to equity markets right now is a hard economic landing developing in H2’23 or sometime in 2024. Using modern market history as a guide, stock market rallies following yield curve inversions are typically reversed entirely during subsequent recessions (so all of the 2023 gains are at risk, and then some).

So, in this week’s edition of Sevens Report Technicals we included a list of Five Recessionary Bear Market Signals to Watch, which includes specific levels to monitor in various asset classes that will help us realize the onset of a looming recession in real time.

The feedback on Sevens Report Technicals has been overwhelmingly positive since its launch in May. One subscriber recently wrote in: “Having been in the business for 36 years and retired for 16, I truly believe this is the best report I have ever seen. The way you organize it and the info I glean from it helps my trading. I really look forward to each Monday’s report.”

To access this week’s edition of Sevens Report Technicals, please send an email to info@sevensreport.com to start a risk-free subscription. We offer a 30-day money back guarantee, so you risk nothing to see for yourself how Sevens Report Technicals can help you and your business.

Could the Yield Curve Be Wrong This Time?

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What’s in Today’s Report:

  • Could the Yield Curve Be Wrong This Time?
  • Chart: 10s-2s Yield Curve Spread Near Multi-Decade Lows

Futures are lower this morning as economic data confirmed weakness in the global manufacturing sector while the RBA unexpectedly paused their rate hiking cycle at the conclusion of their latest meeting overnight.

Economically, China’s Manufacturing PMI fell to a contractionary reading of 49.2 vs. (E) 50.1 while the Eurozone PMI met estimates at a very weak reading of 42.7, underscoring the challenges facing the global manufacturing sector.

Looking into today’s session, there are several economic reports to watch: ISM Manufacturing Index (E: 46.5), Construction Spending (E: 0.6%), and JOLTS (E: 9.650 million). Investors will be looking for better than feared manufacturing data in the U.S. and signs that the domestic labor market is softening but not collapsing.

Earnings season also continues with multiple notable companies reporting quarterly results today including: UBER ($0.00), PFE ($0.57), CAT ($4.51), and JBLU ($0.40) before the open and AMD ($0.57), SBUX ($0.95), and AIG ($1.54) after the close.