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Time to Chase This Market?

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Time to Chase This Market? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Time to Chase This Market?
  • Weekly Market Preview:  Do Rate Cut Expectations for March Keep Falling? (It Depends on the Data)
  • Weekly Economic Cheat Sheet:  Important inflation report on Friday and important growth report on Wednesday.

Futures are modestly higher on momentum from Friday’s record highs, following a mostly quiet weekend of news and despite more economic stress in China.

Chinese markets continued to collapse (Hang Seng, Shanghai and Shenzen all down 2%-3%) after there was no cut to the 1/5 year Prime Loan Rates, despite clear signs of deflation and contracting economic growth.

Today there is one notable economic report,  Leading Indicators (E: -0.3%), but barring a major surprise it shouldn’t move markets.

Instead, focus will shift to earnings as the next two weeks will be the most important ones of this earnings season.  Some important reports today include:  PG ($1.70), JNJ ($2.27), VZ ($1.07), MMM ($2.31), UAL ($1.61), LOGI ($1.13), GE ($0.90).

Bullish

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Sentiment Update

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Sentiment Update: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Sentiment Update
  • Empire State Manufacturing Index Falls to Pandemic Lows

U.S. futures are tracking global shares lower as the ECB’s Lagarde became the latest to push back on overly dovish policy expectations. While Chinese economic data showed consumer weakness (but industrial strength) and inflation reaccelerated in Europe. This is adding to the recent trend of less-dovish/more-hawkish money flows.

Toay is lining up to be a busy session as there are a slew of economic reports due this morning. Including: Retail Sales (E: 0.4%), Import & Export Prices (E: -0.6%, -0.6%), Industrial Production (E: -0.1%), and the Housing Market Index (E: 38).

There are also several Fed officials scheduled to speak over the course of the session: Barr, Bowman, and Williams.

Earnings will also continue to come in today with several more notable financial companies reporting: SCHW ($0.65), CFG ($0.60), and DFS ($2.50).

Bottom line, trading has taken a more cautious tone this week with heavier price action in stocks. In order for that to ease and risk appetites return to the market today, we will need to see data that is consistent with a still healthy and resilient consumer but not to the point where the Fed would be inclined to delay rate cuts or cut less in 2024. Investors will look for less-hawkish Fed commentary and stable earnings as well. If those developments do not occur the risk of an acceleration lower in stocks this week will rise meaningfully.

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All Of Us In The Markets Are In A Proverbial Canoe

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All Of Us In The Markets Are In A Proverbial Canoe: Tom Essaye Quoted in Courthouse News Service

Markets roar in 2023 as inflation ticks down and Fed eases rate hikes

Tom Essaye of the Sevens Report likened the market in 2023 to rough sailing. “I can’t help but feel as though all of us in the markets are in a proverbial canoe and the investing public is violently leaning to one side of the canoe and then the other, causing it to nearly tip each time,” he wrote in an investor’s note.

Essaye wrote that many believe the Fed will slash interest rates about six times next year, believing inflation will soon “go into some sort of freefall” and the S&P 500 may hit 5,000 points. “But I’ve been in this industry long enough to know that when everyone seems to be leaning on one side of the proverbial canoe, it pays to move to the middle,” he wrote.

Also, click here to view the full Courthouse News Service article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Explaining This Market Surge to Clients

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What’s in Today’s Report:

  • Explaining This Market Surge To Clients
  • Weekly Economic Cheat Sheet:  Why Bad Data is Now Bad for Stocks
  • Weekly Market Preview:  Does the Santa Rally Continue into Year-End?

Futures are modestly higher following a generally quiet weekend of news. The markets continue to digest the Fed’s dovish pivot and continued stock and bond rally.

Fed pushback on the market’s rate cut expectations continued over the weekend as Cleveland Fed’s Mester said markets were “a little bit ahead” of themselves expecting cuts in early 2024.

Economically, the only notable number was German Ifo Business Expectations, which slightly missed estimates.

Today the only notable economic number is the Housing Market Index (E:36) and if there’s weakness in this price index it’ll reinforce that broad inflation is continuing to decline and that will be a general positive for stocks and bonds.  Outside of the data, look for Fed officials to continue to push back on market rate cut expectations.  But, other than causing some temporary volatility, that shouldn’t impact markets beyond the short term (and won’t derail this rally).

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Separating Short Term vs. Longer Term in this Market

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Separating Short Term vs. Longer Term: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Separating Short Term vs. Longer Term in this Market
  • Important Context for Economic Data Going Forward
  • Weekly Market Preview:  How Much Higher Can Markets Rally in 2023?
  • Weekly Economic Cheat Sheet:  Does Data Start to Roll Over?

Futures are modestly lower following a generally quiet weekend as markets further digested last week’s stock and bond rally.

On inflation, Swiss CPI rose less than expected (1.4% y/y vs. (E) 1.7%) continuing last week’s trend of smaller than expected increases in inflation in the EU region.

On growth, German exports underwhelmed (-0.2% vs. (E) 1.1%) continuing the recent trend of both lower inflation and slowing growth.

Today the only notable economic report is Factory Orders (E: -2.6%) and it’d take a major beat or miss to move markets, so we should expect continued general digestion of last week’s rally.

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Separating Short Term vs. Longer Term in this Market

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Bull vs. Bear Case (Part 1 of 3)

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Bull vs. Bear Case (Part 1 of 3): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Bull vs. Bear Case – What the Bulls Think Will Happen

Futures are flat with the 10-Yr yield hovering near 4.40% as traders await a slew of Fed speak and fresh economic data.

Economic data overnight was mildly disappointing. As Australian Retail Sales, the German GfK Consumer Climate report and Eurozone M3 Money Supply all missed estimates.

Looking into the U.S. session, there are a few second-tiered economic reports to watch today: Case-Shiller Home Price Index (E: 0.7%), FHFA House Price Index (E: 0.4%), and Consumer Confidence (E: 101.5), but none are likely to move markets ahead of the key inflation data due out Thursday.

Additionally, there are several Fed officials scheduled to speak today: Goolsbee, Waller, Bowman, and Barr. If any of them strike a materially hawkish tone or stray from the “soft landing” outlook narrative, it could weigh on stocks today.

Finally, there is a 7-Yr Treasury Note Auction at 1:00 p.m. ET. If the results are weak and yields move higher, expect that to be a headwind for equities today. Conversely, a strong auction could push rates to new lows and power stocks higher into the end of the month.

Bull vs. Bear Case

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Small Cracks in the Three Pillars of the Rally?

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What’s in Today’s Report:

  • Small Cracks in the Three Pillars of the Rally?
  • Weekly Market Preview:  Can the Ideas of A Dovish Fed and Economic Soft-Landing Power Stocks to 2023 Highs?
  • Weekly Economic Preview:  Key Inflation and Growth Data This Week

Futures are slightly lower after a mostly quiet weekend as Chinese growth worries offset geo-political positives.

Chinese industrial profit growth slowed to 2.7% in Oct vs. 11.9% in Sept and that data combined with news of a quickly spreading respiratory illness in China is weighing on growth expectations.

Geo-politically, the Israel-Hamas cease fire will likely be extended several days and that’s easing geo-political tensions and oil is falling as a result (down more than 1%).

This week contains several potentially important catalysts on inflation and economic growth, but they come later in the week. So, focus today will be on holiday spending commentary and New Home Sales (E: 721k).  Positive commentary on spending and Goldilocks data would help support stocks.

Three Pillars of the Rally?

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Three Pillars of the Rally Updated

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Three Pillars of the Rally Updated: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Three Pillars of the Rally Updated (An Important Change to Watch)
  • Weekly Economic Cheat Sheet – Friday’s Flash Composite PMI in Focus

Futures are steady after a mostly quiet weekend of financial news and thinning volumes coming into the holiday-shortened Thanksgiving trading week.

Geopolitically, Iran-backed Houthi rebels seized a cargo ship in the Red Sea. This is rekindling a fear bid in global energy markets as seaborne oil cargoes are viewed as “at risk.” The rise in oil prices is modestly pressuring Treasuries this morning (yields up slightly).

Economically, German PPI met estimates of -11.0% Y/Y in October further solidifying the global peak-inflation argument.

Looking into today’s session, there is just one economic report on the calendar with Leading Indicators (E: -0.6%) due out shortly after the open and there is just one Fed speaker midday: Barkin (12:00 p.m. ET).

One potential catalyst that could shake up markets today is the 20-Year Treasury Bond auction at 1:00 p.m. ET as weak results could trigger a rebound in yields. Especially given fading attendance this week and subsequently less liquid market conditions across asset classes.

Three Pillars

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Stock Rally, 1o-Yr Treasury Yield, and Fed Policy

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Stock Rally, Treasury Yield, and Fed Policy: Tom Essaye Quoted in MarketWatch on MSN

Dow ends nearly 400 points higher as tech rally leads stocks to highest close since September

But the subsequent rally for stocks after the Nov. 1 Fed meeting, with the S&P 500 jumping more than 6% over eight days, and a 50 basis point drop in the 10-year Treasury yield were “overdone and not governed by facts,” said Tom Essaye, founder of Sevens Report Research, in a note.
“Meanwhile, if we think about what the Fed said last week, namely that the rise in the 10-year treasury yield was doing the Fed’s work for it and as a result they may not have to hike rates, then the short/sharp decline in the 10-year yield we’ve seen could essentially remove the reason for the Fed not having to hike rates — and that could put a rate hike back on the table!” he wrote. “That’s essentially what Powell reminded us of yesterday and that, along with the poor Treasury auction, pushed yields higher,” setting up pressure on stocks.

Also, click here to view the full article published by MSN on November 11th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Treasury Yield

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Understanding Why Stocks Rallied Part Two

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Understanding Why Stocks Rallied Part Two: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Understanding Why Stocks Rallied Part Two (Visual Aid)
  • EIA Analysis and Oil Market Update

Futures are little changed despite underwhelming earnings as markets further digest Tuesday’s rally.  There was no notable economic data overnight.

CSCO (down 11%) and PANW (down 5%) both posted disappointing earnings although the positive macro news from earlier this week is helping markets stay buoyant.

Today we have several important economic reports as well as numerous Fed speakers.  For the economic data, the key remains “Goldilocks” readings that aren’t so good it makes the market rethink dovish Fed expectations, yet not so bad it increases hard landing worries.  Key reports today include Jobless Claims (E: 222K), Philly Fed (E: -11.0), and the Housing Market Index (E: 40) and close to in-line readings for each will help markets continue to hold Tuesdays’ gains.

On the Fed front, there are a slew of speakers today but the most important one is Williams (9:25 a.m. ET) because he’s part of Fed leadership.  Don’t be surprised if Fed officials push back on the markets aggressively dovish expectations today but unless Williams comes out and says another rate hike is very possible, markets will likely ignore the rhetoric.  The list of speakers today includes:  Barr, Mester, Williams, Waller, and Cook.

Understanding Why Stocks Rallied

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