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Updated Market Outlook

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What’s in Today’s Report:

  • Updated Market Outlook – Markets Price in “Economic Nirvana”
  • Based on Valuations, Cyclical Sectors Poised to Outperform
  • Weekly Economic Cheat Sheet: Will the Flash PMIs Support Soft-Landing Optimism?

Futures are lower to start the holiday-shortened trading week today with Asian markets underperforming as the latest Chinese stimulus efforts were seen as underwhelming while inflation trends in Europe remain favorable.

The PBOC lowered both the 1-Yr and 5-Yr prime loan rates by 10 bp overnight to 3.55% and 4.2%, respectively, but the cuts disappointed versus hopeful investor expectations given weak economic data lately, and markets traded with a risk-off tone in the wake of the announcements.

In Europe, German PPI fell to 1.0% vs. (E) 1.8% in May offering the latest evidence that the global disinflation trends remain intact.

Looking into today’s session, there is just one economic report to watch: Housing Starts (E: 1.40M) which shouldn’t move markets, and only one Fed speaker: Williams (11:45 a.m. ET).

With stocks overextended by multiple measures right now, there will likely be some degree of digestion of the latest leg higher in equity markets now that the June Fed decision and Friday’s massive options expiration are behind us. With that in mind, focus will begin to shift to Powell’s semi-annual Monetary Policy Report to Congress which begins tomorrow as investors look for further insight to the Fed’s future policy plans.

S&P 500 Tests MMT Resistance

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What’s in Today’s Report:

  • S&P 500 Tests “Better If” MMT Target
  • Economic Data Takeaways (Goldilocks So Far)
  • ECB Has More Work to Do on Inflation

Stock futures are flat as yesterday’s rally is digested while global markets were mostly higher overnight thanks to continued optimism about AI focused investments and in-line inflation data in Europe.

ADBE shares were up as much as 4% in pre-market trading after strong earnings and AI-related guidance yesterday which is supporting mega-cap tech ahead of the open this morning.

The Narrow Core inflation reading within the Eurozone HICP (their CPI equivalent) fell from 5.6% to 5.3% y/y in May, meeting estimates and offering further confirmation that the global disinflation trend has resumed.

Today, there are no Fed officials scheduled to speak and just one economic report to watch: Consumer Sentiment (E: 60.5), but the consumer inflation expectations components within the release could move markets if they are meaningfully different from the previous release.

Finally, on a derivatives market note, today is a Quadruple Witching options expiration which means volumes will be elevated and volatility could potentially spike due to trader repositioning.

Fed Decision Takeaways

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • FOMC Decision Takeaways
  • Oil Update – Resilient Demand Offset By Fed Policy Worries

U.S. equity futures are lower as the Fed decision continues to be digested while global economic data largely missed expectations overnight.

Economically, Chinese data was universally disappointing with Industrial Production and Retail Sales both missing estimates while EU trade data showed that imports and exports both declined by more than anticipated. China’s central bank cut rates further overnight, however, which saw risk assets in Asia recover to end with gains.

Looking into today’s session, the ECB decision will be in focus this morning (E: +25bp hike) followed by President Lagarde’s press conference. If the ECB is seen as hawkish, it will likely weigh on stocks and other risk assets as it will show central bankers are not yet satisfied with the trends in inflation and more aggressive policy is likely in the months ahead.

In the U.S., there is a slew of economic data due to be released including: Jobless Claims (E: 250K), Retail Sales (E: 0.0%), Philadelphia Fed Manufacturing Index (E: -13.2), Empire State Manufacturing Index (E: -15.1), Import & Export Prices (E: -0.6%, -0.5%), and Industrial Production (E: 0.1%).

And with the Fed leaving future policy plans largely “open” and dependent on economic data, the market will want to see more “Goldilocks” trends with slowing growth and a more rapid decline in price readings.

 

Sevens Report Alpha: Artificial Intelligence Issue

This week’s Alpha issue focused on a very popular market topic:  Artificial Intelligence.

This issue was an update to a March 7th Alpha issue on AI, and the three ETFs we profiled in that report have risen 20%, 17%, and 14%, respectively in just three months! 

This week’s AI issue updated and expanded that research as we:

  • Reviewed and updated the research on our previous AI ETF picks.
  • Introduced two new AI-focused ETFs that are both up more than 30% YTD.
  • Included a proprietary spreadsheet of 30 AI stocks and categorized them by: Sector, Market Cap, Price/Earnings ratio, Price/Sales ratio, Revenue, and Performance.

If you’d like to start a risk-free trial subscription to Sevens Report Alpha and access the latest AI issue, and all previous Alpha issues and webinars since 2017, please email info@sevensreport.com.

We do ask that you pay the $330 quarterly subscription fee, but there is a 30 day money back guarantee, so you risk nothing to try the product.  

To learn more about Sevens Report Alpha, click this link. 

CPI Preview (Good, Bad & Ugly)

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What’s in Today’s Report:

  • CPI Preview (Good, Bad & Ugly)

Futures are little changed despite solid tech earnings and more Chinese stimulus, as markets await the CPI report at 8:30 a.m. ET.

ORCL posted solid earnings and rallied 5% overnight and that’s adding to overall tech and market momentum.

Chinese authorities cut the reverse repo rate to 1.9% from 2.0%, and that move increased market expectations for future additional stimulus.

Today focus will be on the CPI report and expectations are as follows: 0.2% m/m, 4.1% y/y, Core CPI (E: 0.4% m/m, 5.3% y/y).  Additionally, “Super Core” CPI (which is core CPI less housing) will also be in focus and markets will want to see a drop to (or ideally below) 5.2% y/y.

Bottom line, markets need CPI to confirm accelerating disinflation to continue to rally, while a sticky inflation number will result in real market disappointment (although the looming FOMC decision should keep any market moves more muted than they otherwise would have been).

Sevens Report Co-Editor Quoted in MarketWatch on June 9th, 2023

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U.S. oil futures fall for the session, lose more than 2% for the week

Prices had started the week moving higher after Saudi Arabia said it would cut output by an additional 1 million barrels per day in July. However, “traders faded the move,” as the Saudi cut would only remove one-third of a single day’s worth of global oil production over the course of July, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Discusses The Market Outlook on Yahoo Finance on June 5th, 2023

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Morgan Stanley expects 16% earnings drop for S&P 500 companies

The S&P 500 is nearing a bull market. But Morgan Stanley analysts are predicting a 16% earnings drop for S&P 500 companies. Ben Laidler, Global Markets Strategist at eToro, and Tom Essaye, Sevens Report Research Founder and President, give their takes on what lies ahead for the market. Click here to watch the full interview.

What the BOC Rate Hike Means for U.S. Interest Rates

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What’s in Today’s Report:

  • What the BOC Rate Hike Means for U.S. Interest Rates

Futures are little changed despite more economic stimulus from China.

The Chinese government cut bank deposit rates and encouraged lending to boost auto sales in the latest effort to stimulate the economy, although the moves were already expected so this isn’t a new, positive surprise.

Economic data was sparse overnight with Japanese and EU GDPs the only notable releases, and neither number moved markets.

Today the only notable economic report is Jobless Claims (E: 235K) and markets will want to see stability in the data (so no sudden jump higher), but more broadly markets remain in a temporary “holding pattern” with the CPI report and Fed decision now both looming less than a week away.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart (Unbranded PDF Available)
  • Why Did Small Caps Surge?

Stock futures are little changed in premarket trade indicating this week’s digestive churn sideways could continue today following mixed economic data overnight.

Chinese exports dropped -7.5% vs. (E) +1.0% year-over-year in May adding to worries about the health of the recovery in the world’s second largest economy.

Conversely, in Europe, German Industrial Production jumped 1.8% vs. (E) 1.4% y/y helping ease some worries about the health of the EU economy.

Looking into today’s session, the list of potential catalysts remains light as there are just two economic reports to watch: International Trade in Goods and Services (E: -$76.0B) and Consumer Credit (E: $21.0B) while there are no Fed officials scheduled to speak.

That will leave focus on market internals and whether or not the early June money flows into cyclicals and small cap stocks can continue. If so, the improving breadth in the market with the S&P 500 sitting just under YTD highs will add to the case that the 2023 rally is sustainable.

Market Multiple Table: June Update

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What’s in Today’s Report:

  • Market Multiple Table – June Update
  • ISM Services PMI Takeaways

There is a modest risk-off tone in global markets this morning as a favorable drop in inflation expectations in Europe is helping offset an unexpected rate hike by the RBA.

The Reserve Bank of Australia surprised markets for the second month in a row as policy makers raised rates 25 bp to 4.10% as still elevated inflation levels remains a concern.

Meanwhile, in Europe, the ECB’s 1-Yr Consumer Inflation Expectations dropped to 4.1% in April from 5.0% in March which supports the case that the disinflation trend in Europe and the U.S. has resumed which is helping bonds rally this morning.

Looking into today’s session, it is lining up to be a quiet day as there are no economic reports and no Fed officials are scheduled to speak.

What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?

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What’s in Today’s Report:

  • What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?
  • Weekly Market Preview:  Does Economic Data Stay Resilient?
  • Weekly Economic Cheat Sheet:  Service Sector in Focus This Week

Futures are little changed as markets digest the Thursday/Friday rally amidst a mostly quiet weekend of news.

Oil prices are solidly higher (Brent crude up 1.7%) after Saudi Arabia announced a voluntary 1M bpd production cut for the next month, although that’s not seen as a sustainable bullish catalyst.

Economically, global service PMIs were mixed as the Euro Zone Service PMI missed expectations (55.1 vs. (E) 55.9) while the UK and Chinese service PMIs were in-line.

Today focus will be on the ISM Services Index (E: 52.0.) and specifically the price index in this report.  Last week, a sharp drop in the ISM Manufacturing PMI Prices Paid Index ignited the rally, and if we see a similar drop in the services price index, it’ll help extend the rally as markets will get more confident disinflation is accelerating.