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How to Explain the Current Pullback to Clients & Prospects

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What’s in Today’s Report:

  • How to Explain the Current Pullback to Clients & Prospects
  • Weekly Market Preview:  Will Treasury Yields Stabilize? (That’s the Key to Ending This Pullback)
  • Weekly Economic Cheat Sheet:  Important Growth Updates and Powell Speech on Friday

Futures are modestly higher thanks to more evidence of global disinflation and despite another round of underwhelming Chinese stimulus.

German PPI declined -6.0% y/y vs. (E) -5.1% y/y and that’s serving as a reminder that inflation is still falling globally.

In China, officials cut the Loan Prime Rate less than expected (-10 bps vs. (E) -15 bps) and while that will provide stimulus, it’s not alleviating concerns that the Chinese economy will be a headwind on global growth.

Today there are no economic reports and no Fed speakers (the Jackson Hole Fed conference is this week, so speakers will increase throughout the week culminating with Powell on Friday).  As such, Treasury yields will remain a short-term influence on stocks.  Yields and futures are higher this morning but if yields extend the rally throughout the day, don’t be surprised if stocks give back these early gains.

What Can Push Stocks Higher from Here?

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What’s in Today’s Report:

  • What Can Push Stocks Higher from Here? (Four Candidates)
  • Weekly Market Preview:  Do the Three Pillars of the Rally Get Further Reinforced?
  • Weekly Economic Cheat Sheet:  Focus on Growth Data this Week (Not Inflation).

Futures are drifting modestly higher following a quiet weekend of news, as markets digest the uptick in volatility so far in August.

Concerns about the Chinese economy grew this morning after real estate firm Country Garden suspended trading in select offshore bonds, reminding investors of Chinese property market volatility from years ago and reinforcing that recession risks in China are real.

There was no notable economic data overnight.

Today there are no notable economic reports so focus will remain on Treasury yields ahead of important economic data and earnings later this week. Generally speaking, the more calm the movement in yields (so no big rallies and no big declines) the better for stocks.

Why the Fed is Causing the Pullback (Not Omicron)

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What’s in Today’s Report:

  • Why the Fed is Causing the Pullback (Not Omicron)
  • Weekly Economic Cheat Sheet:  All About Inflation (Key Reports Friday)
  • Weekly Market Preview:  Can tech stabilize?

Futures slightly higher following generally positive comments on Omicron over the weekend.

There were multiple articles and commentary from public health officials suggesting the Omicron variant is more contagious but produces mild symptoms. Also, existing vaccines appear to give protection against severe illness, although markets are waiting for official word from both PFE and MRNA.

Economic data was mixed as German Manufacturers Orders fell –6.9% vs. (E) -0.5% while the UK Construction PMI rose to 55.5 vs. (E) 52.0 but the numbers aren’t moving markets.

Today there are no economic reports and no Fed speakers.  Like Friday, how the Nasdaq trades will likely determine the day, as markets want to see the tech sector stabilize after intense weakness late last week.  If Nasdaq can stabilize, the broad market can bounce.

Tom Essaye Quoted in Bolly Inside on October 18, 2021

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US stocks rise, bonds fall on inflationary bets

The issues that caused the pullback have quieted over the past…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

Tom Essaye Quoted in Yahoo Finance on October 18, 2021

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U.S. Stocks Extend Rebound as Oil Pares Back Gains: Markets Wrap

The issues that caused the pullback have quieted over the past two weeks, which has…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

Tom Essaye Quoted in S&P Global on September 14, 2021

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US debt ceiling fight could cause markets to tumble, delay Fed taper

I think in a market that’s stretched, that doesn’t have a lot of backing at these fundamental levels, if you get some sort of serious scare, it could take 5% to 10% out of the S&P 500 pretty quick…Essaye said. Click here to read the full article.

End of the (Mild) Pullback?

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What’s in Today’s Report:

  • End of the (Mild) Pullback?
  • EIA Update and Oil Market Update (Breakout)

Futures are modestly lower as markets digest Wednesday’s rally following a quiet night of news.

Economically, the only notable report was Euro Zone exports, which beat expectations (1.0% vs. (E) -0.8%).

Politics remained in focus as centrist Democrats stopped the progress of a drug price control bill, highlighting the division in the party (this is an incremental positive as markets would prefer there are no policy changes at all this year).

Today focus will be on economic data, as markets will want to see stability in two reports, Jobless Claims (E: 315K) and Philadelphia Fed Manufacturing Index (E: 19.2), and not too big of a decline in August Retail Sales (E: -0.8%).  If we get another round of better than expected macro data, then stocks can extend yesterday’s gains.

Tom Essaye Quoted in Yahoo Finance on July 20, 2021

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Stock market is at risk of a correction if this happens amid the spread of the Delta variant

This market is vulnerable to a bigger pullback or correction if there’s a new… warns Sevens Report Research founder Tom Essaye. Click here to read the full article.

Why the Long-Term Bullish Case Got Stronger Last Week

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What’s in Today’s Report:

  • Why the Long-Term Bull Case Got Stronger Last Week
  • Weekly Market Preview:  Will Lockdown Worries Cause a Near Term Pullback?
  • Weekly Economic Cheat Sheet:  Is the Economic Recovery Starting to Stall?

Futures are down nearly 2% this morning as concerns about a coronavirus mutation offset news of a stimulus deal being reached.

England went into lockdown again after a mutation of COVID-19 started to spread rapidly throughout the country, sparking fears of an extension of the pandemic.  Positively, scientists are confident that the vaccine will work for COVID mutations as well, but that’s not helping stocks this morning as concerns rise about wider/longer economic lockdowns.

On stimulus, Congress agreed to a $900 billion stimulus bill and a vote is expected today. However, this was already priced into stocks (that’s why it’s not causing a rally).

Today there are no economic reports and no Fed speakers, so focus will remain on stimulus and the coronavirus.

Regarding stimulus, the stimulus bill is expected to pass Congress today (so markets will expect that to happen).  Regarding coronavirus, any headlines that imply this mutated coronavirus is spreading across the globe will cause further downside in stocks (because it could lead to greater/longer economic lockdowns, which has been the focus of the market throughout the pandemic).

Tom Essaye Quoted in MoneyWeek on September 21, 2020

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The trouble is that there is still plenty of froth around, says Bloomberg. The recent mini-crash wiped $2trn off stock valuations, but trading data shows that bullish retail investors, who often buy in through apps like Robinhood, remain “unbowed”. As Tom Essaye of The Sevens Report newsletter puts it, the recent pullback was “not even close to scary…” Click here to read the full article.