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Did the Last 48 Hours Make the Fed More Hawkish?

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Did the Last 48 Hours Make the Fed More Hawkish? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Did the Last 48 Hours Make the Fed More Hawkish?

Futures are modestly higher following a quiet night as markets bounce following Thursday’s high-rate driven declines.

Economically, UK Retail Sales declined –2.3% vs. (E ) -0.1%, although that’s not making a June cut more likely.

Geo-politically, there are reports Putin will seek a cease-fire in Ukraine, although that’s unconfirmed (it would be a surprise positive if true).

Given the looming long weekend we can expect quiet trading today but there are two notable economic reports:   Durable Goods Orders (E: -0.5%) and University of Michigan Inflation Expectations (1-Yr Inflation Expectations: 3.5%, 5-Year Inflation Expectations 3.1%). As yesterday demonstrated, strong data is “bad” for stocks in the near term so markets will want to see in-line readings or slightly soft numbers on both reports to help fuel a rebound from yesterday.

There is also one Fed speaker and it’s an important one, Waller at 9:35 a.m. ET, but it’s unlikely he’ll say anything surprising (he just spoke earlier this week).

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Even after the revisions, the data was really mostly in line.

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Even after the revisions, the data was really mostly in line: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

The Market Is in a Trance. Wednesday’s Inflation Data Could Break It.

But Sevens Report Research’s Tom Essaye told Barron’s in a phone interview that even after the revisions, the data was really mostly in line.

“The markets could be entering an extension of the sweet spot that they were in earlier in the year,” Essaye says. “If you’re looking out, there are definitely some things you want to pay attention to, because some of this data is starting to point in a not-great direction. But it’s not necessarily a reason to sell now.”

“We were in the bullish trance, and now Powell has kind of put us back into it by saying, ‘Well, no, we’re not going to hike rates. Probably going to cut rates once or twice’ or whatever,” Essaye says. “That kind of got us back into it. So it’s going to take a hot data point.”

Also, click here to view the full Barron’s article published on May 14th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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“Good, bad and ugly” outcomes for the April consumer-price index reading.

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“Good, bad and ugly” outcomes for the April consumer-price index reading: Tom Essaye, founder of Sevens Report Research, Quoted in Morningstar

Stock market could suffer ‘ugly’ day if April CPI comes in above this level

Tom Essaye, founder of Sevens Report Research, took a look Tuesday at potential “good, bad and ugly” outcomes for the April consumer-price index reading.

So what would provoke an ugly reaction? Essaye puts the threshold at 3.9%.

A core reading at or above that threshold would be likely to spark a “solid selloff,” further entrenching the idea that inflation remains sticky and rates will be higher for longer, Essaye wrote. That has the potential of undoing much of the rally seen over the last two weeks, as investors would likely scale back rate-cut expectations, penciling in just one cut in December.

Also, click here to view the full MarketWatch article published on Morningstar on May 14th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Oil Inventories

Lastly, If you want research that comes with no long-term commitment, yet provides independent, value-added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

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Even a small bout of stagflation would result in a 10%-20% decline in stocks

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Even a small bout of stagflation would result in a 10%-20% decline in stocks: Tom Essaye Quoted in MarketWatch

The economy could be heading toward 1970s-style stagflation. What it means for the stock market.

 “Stagflation doesn’t have to be as bad as it was in the 1970s, but for a stock market that’s trading above 21 times earnings, the truth is that even a small bout of stagflation would result in a 10%-20% decline in stocks,” said Tom Essaye, founder of Sevens Report Research, in a Monday note.

“Of course, comparing this period to the 1970s, where GDP growth was flat or negative and CPI was running more than 10%, [Powell’s] absolutely right [that] there is no stagflation,” said Essaye. But he added that it’s somewhat “dismissive” to say that just because things aren’t as bad as they were in the 1970s, any talk of stagflation is unwarranted.

“In an absolute sense,” economic growth is not at levels that would imply stagflation — but data releases are becoming “more conclusive that economic momentum is slowing,” Essaye said. “While stagnation isn’t here yet, the data is showing a greater chance of it occurring than any time in the last year and a half.”

Also, click here to view the full MarketWatch article published on May 13th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Advisor Considerations of the “T+1” Settlement Change

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Advisor Considerations of the “T+1” Settlement Change: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Practice Management Update: Examining the Upcoming Move to T+1 Settlement
  • Long-Term S&P 500 Chart: Greatest Volatility Risk Since January 2022

Futures are flat this morning as economic data was mixed in Europe and global traders await NVDA earnings (tomorrow) to gauge the outlook for AI industry growth.

In Europe, German PPI fell -3.3% vs. (E) -3.1% underscoring that disinflation trends remain underway in the EU while the UK’s CBI Industrial Trends Order Balance dropped -33% vs. (E) -20% adding to global factory sector worries.

Looking into today’s session, there are no economic reports to watch but a handful of Fed speakers on the calendar this morning: Barkin (9:00 a.m. ET), Waller (9:00 a.m. ET), Williams (9:05 a.m. ET), Bostic (9:10 a.m. ET) and Barr (11:45 a.m. ET).

At this point, the higher-for-longer mantra has been absorbed by markets and it would take renewed talk of rate hikes to meaningfully move markets, especially as traders settle in and await tomorrow’s post-bell earnings release from NVDA which is widely viewed as the most important catalyst of this week.

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Still A Soft Landing, But Growth Is Slowing

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Still A Soft Landing, But Growth Is Slowing: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Hard Landing/Soft Landing Scoreboard:  Still A Soft Landing, But Growth Is Slowing

Futures are little changed as markets again digested the post CPI rally amidst more in-line inflation data and additional Chinese economic stimulus.

Core EU HICP (their CPI) met expectations, rising 0.7% m/m and 2.7% y/y, and kept a June rate cut on track.

In China, the government announced a sweeping program to support the property industry, potentially adding more critical stimulus to the Chinese economy.

Today focus will be on Leading Indicators (E: -0.3%) and two Fed speakers, Waller (10:15 a.m. ET) and Daly (12:15 p.m. ET), but barring any major surprises, they shouldn’t move markets and further digestion of the new highs is to be expected.

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Short vs. Long Term Market Outlook (Is Falling Inflation & Slowing Growth Good for Stocks?)

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Short vs. Long Term Market Outlook: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Short vs. Long Term Market Outlook (Is Falling Inflation & Slowing Growth Good for Stocks?)
  • EIA Update and Oil Market Analysis

Futures are little changed as market digest Wednesday’s new high amidst more dovish global data.

Japanese GDP (-0.5% vs. (E) -0.4%), Aussie Unemployment (4.1% vs. (E) 3.9%) and Italian HICP (their CPI, 0.9% vs. (E) 1.0% y/y) all pointed towards falling inflation and slowing global growth, which investors welcome (for now).

Today is a busy day full of data and Fed speak.  Broadly speaking, if the data/Fed speak is dovish and Treasury yields drop, it’ll extend the rally.

Notable economic data today includes (in order of importance):  Jobless Claims (E: 219K), Philly Fed (E: 7.8), Industrial Production (E: 0.1%) and Housing Starts (E: 1.435MM).

On the Fed, there are numerous speakers including:  Barr (10:00 a.m. ET), Barkin (10:00 a.m. ET), Harker (10:30 a.m. ET), Mester (12:00 p.m. ET), Bostic (3:50 p.m. ET).  But, unless they all start talking about rate hikes (very unlikely), their commentary shouldn’t move markets.

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Key Levels to Watch: S&P 500, 10Y, Gold, VIX

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Key Levels to Watch: S&P 500, 10Y, Gold, VIX: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Technical Preview: S&P 500, 10Y, Gold, VIX
  • Trading Color – The “Chase” Higher Continued Yesterday
  • PPI Takeaways: Downside Revisions Spark Dovish Money Flows

Futures are flat while European stocks are modestly higher thanks to market-friendly economic data overnight ahead of today’s U.S. CPI report.

GME and AMC are both notably up another 10%+ in pre-market trading suggesting the meme-stock frenzy is poised to continued today.

Economically, French CPI met estimates at 2.2% y/y while Eurozone Industrial Production was up 0.6% vs. (E) -0.5% helping to ease lingering worries about the threat of global stagflation.

Today, focus will be acutely on economic data in the premarket with CPI (E: 0.3% m/m, 3.4% y/y) and Core CPI (E: 0.3% m/m, 3.6% y/y) the most important release to watch. Downside revisions to March like we saw in yesterday’s PPI report and a goldilocks headline should see stocks extend gains and test or break through current records.

However, in order for the equity rally to continue it is important that Retail Sales (E: 0.4%), the Empire State Manufacturing Index (E: -10.0), and the Housing Market Index (E: 51.0) don’t offer and negative surprises as there is a tentative and complacent feel to the current test of the all-time-highs.

After the economic data is digested, there are two Fed officials scheduled to speak today: Kashkari (12:00 p.m. ET) and Bowman (3:20 p.m. ET). Investors have become comfortable with the higher-for-longer tone recently, but any mention of hikes could pressure markets here.

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CPI Preview: Good, Bad, & Ugly

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CPI Preview: Good, Bad, & Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Thoughts on the Meme-Stock Revival
  • CPI Preview: Good, Bad, & Ugly
  • Chart – NY Fed’s Consumer Survey Contains Hot Inflation Print

Global markets are little changed this morning as traders digest mostly better-than-expected economic data from Europe and await today’s PPI report and commentary from Fed Chair Powell.

“Meme stocks” GME and AMC are notably up 58% and 64%, respectively, in pre-market trading this morning (more on that in today’s report).

Economically, German CPI met estimates at 2.2% y/y while Economic Sentiment in the German ZEW came in at 47.1 vs. (E) 45.0. Domestically, the NFIB Small Business Optimism Index beat with a headline of 89.7 vs. (E) 88.3 but the data is having a limited impact on markets this morning.

Looking into today’s session, focus will be on PPI (E: 0.3% m/m, 2.2% y/y) and Core PPI (E: 0.2% m/m, 2.3% y/y) due out at 8:30 a.m. ET. A “hot” print would spark hawkish, risk-off money flows while a cooler-than-expected report could see the S&P 500 test all-time-highs as CPI whisper numbers are dialed back.

Finally, there are a handful of Fed speakers today including Cook (9:10 a.m. ET) ahead of the bell and Schmid (8:15 p.m. ET) later this evening. Most importantly though, Powell will speak at 10:00 a.m. ET and if he is more hawkish than two weeks ago at the May FOMC meeting, that will put upward pressure on rates and weigh, potentially heavily, on stocks.

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The key parts of the release will be one and five-year inflation expectations

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The key parts of the release will be one and five-year inflation expectations: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

Dow Opens Higher, Extending Winning Streak

Aside from the Fed speakers, traders will get an update on consumer sentiment from the University of Michigan. Sevens Report Research’s Tom Essaye writes that the key parts of the release will be one-year inflation expectations and five-year inflation expectations.

“If both of those numbers are higher than expected, it’ll be another negative signal on inflation and don’t be surprised if Treasury yields rise in response to them and stocks give back these early gains,” Essaye writes.

Also, click here to view the full Barron’s article published on May 10th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.