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FOMC Preview: Wildcard to Watch

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What’s in Today’s Report:

  • FOMC Preview: What’s Expected, Hawkish Scenario, Dovish Scenario
  • Fed Meeting Wildcard to Watch: Dovish Dissents

U.S. equity futures are tracking European shares higher this morning amid continued optimism surrounding the U.S.-EU trade deal and resilient earnings ahead of the Fed decision.

There were no noteworthy economic reports overnight which will leave focus on earnings and U.S. economic data today as the July Fed meeting gets underway in Washington.

Today’s economic calendar is a fairly busy one with several potential market-moving reports due to be released including: Consumer Confidence (E: 95.8), JOLTS (E: 7.4 million), Case-Shiller Home Price Index (E: 2.9%), and International Trade in Goods (E: $-99.0B).

Looking at earnings, the Q2 reporting season continues with notable companies releasing results today including: UNH ($4.84), SOFI ($0.06), BA ($-1.54), PG ($1.43), V ($2.86), MRK ($2.01), SBUX ($0.64).

Bottom line, investors will continue to look for resilient, yet not “too hot” economic data trends and upbeat earnings and guidance in order for stocks to hold yesterday’s record highs, however a familiar sense of “Fed Paralysis” is likely to grip markets ahead of tomorrow’s critical Fed decision.

 

The Market Had Gotten Ahead Of Itself

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The Market Had Gotten Ahead Of Itself: Tom Essaye Quoted in Barron’s

Stocks Drop as Market Dials Back Fed Rate-Cut Expectations After CPI Data

Sevens Report Research’s Tom Essaye told Barron’s in a phone interview that while the report didn’t imply that inflation was bouncing back significantly, the market had gotten ahead of itself by pricing in inflation crashing to the Federal Reserve’s 2% target.

“I think this is more symptomatic of a market that’s frankly, gotten ahead of itself on what it expects to happen,” Essaye says. “And we’re having that expectation dialed back now.”

“It’s just one report, but I think it is a little bit of a reminder, and an important one, that what has really fueled this rally since October has been the assumption of Fed rate cuts and falling inflation,” Essaye says. “And while that likely will happen later this year, it may not happen as soon as they expected. And I think that’s what we’re seeing in markets.”

Also, click here to view the full Barron’s article published on February 13th, 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 Rally

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Why Have Stocks Dropped?

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Why Have Stocks Dropped? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Have Stocks Dropped (And Are the Reasons Legitimate?)
  • Weekly Market Preview:  Focus Turns to Earnings (And They Need To Be Good)
  • Weekly Economic Cheat Sheet:  Important Growth and Inflation Updates

Futures are solidly lower following a further increase in geopolitical tensions and a lack of domestic political progress over the weekend.

Attacks on Israel from Lebanon increased over the weekend, raising fears of a two-front conflict.

Domestically, political gridlock continued as nine Republicans are now running for Speaker. But it’s not clear any of them have enough support to actually become Speaker.

Today the calendar is quiet as there’s just one notable economic report, the Chicago Fed National Activity Index (E: 0.05), so focus will remain on yields.  The 10-year yield sits at 5.00% as of this writing, and the higher it goes today, the lower stocks will likely fall.  Any progress on electing a Speaker of the House will be welcomed by the markets and likely push yields lower.

On the earnings front, we get a lot of important reports later this week, including MSFT, AMZN, KO, VZ, META, and others. But they come on Tues/Wed/Thurs and today there are just two reports to watch:  CLF ($ 0.46) and LOGI ($0.60).

Why Have Stocks Dropped

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Hard Landing vs. Soft Landing Scoreboard

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Hard Landing vs. Soft Landing Scoreboard: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Hard Landing vs. Soft Landing Scoreboard
  • Chart: 10-Yr Yield Quickly Approaching Last Week’s “Hawkish Technical Target”

Stock futures are lower and there is a modest fear bid in Treasuries this morning. This is amid renewed worries about China’s property sector and growing angst about a potential government shutdown in the U.S.

After one of China’s largest property developers, Evergrande, missed a debt payment, multiple former executives were arrested overnight adding to worries about the embattled sector and the Chinese economy more broadly.

Also, multiple ratings agencies have offered negative warnings regarding the impact of a government shutdown on U.S. debt as the deadline for Congress to reach a deal on spending is just days away. Any progress towards a deal will be a modest positive for risk assets today.

Looking further into today’s session, there are several economic reports to watch this morning including: Case-Shiller Home Price Index (E: 0.6%), New Home Sales (E: 699K), and Consumer Confidence (E: 105.9). To stabilize, markets will want to see more Goldilocks data showing stable but slowing growth and demand metrics and no signs of rising price pressures.

In the afternoon, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET, the first since the hawkish Fed meeting so the results very well could move yields and impact stocks today. Finally, there is one Fed speaker: Bowman (1:30 p.m. ET), and if “higher for longer” is reiterated, that could weigh on risk assets.

Hard Landing vs. Soft Landing Scoreboard

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. 

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.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • Composite Flash PMI Takeaways – Service Sector Growth Falters
  • 10-Yr Note Yield Maintains Long-Term Uptrend (For Now) – Chart

Futures are little changed as mostly upbeat earnings in Europe were offset by a weaker than expected ECB Survey while focus turns to big cap tech earnings and this week’s central bank meetings.

The ECB’s latest Lending Survey revealed that corporate loan demand collapsed to the lowest on record in Q2 underscoring tighter credit conditions and the threat of a further slowdown in growth in the Eurozone.

Today, focus will be on economic data early with the Case-Shiller Home Price Index (E: 0.8%) and Consumer Confidence (E: 111.8) reports both due to be released while the July FOMC meeting gets underway.

There is a 5-Yr Treasury Note auction at 1:00 p.m. ET which could move yields and have an impact on stocks, but a material move in markets ahead of the Fed decision remains unlikely unless it is driven by earnings.

Speaking of which, today will be a busy one for corporate earnings as: VZ ($1.17), GM ($1.65), GE ($0.46), MMM ($1.65) are all scheduled to release results before the bell while tech giants MSFT ($2.54) and GOOGL ($1.32) report after the bell. Additionally, V ($2.11) will release results after the close.

Sevens Report Analysts Quoted on Investing.com on July 17th, 2023

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Dow Jones, Nasdaq, S&P 500 weekly preview: Big Tech takes the stage

Sevens Report analysts: “At current levels, the S&P 500 has priced in 1) No hard landing, 2) Falling inflation and 3) A Fed that won’t be raising rates much longer (and possibly cutting soon after). That’s basically the best outcome anyone could have hoped for at the start of the year, and that means the gains in stocks are legitimate, but also likely exhausted in the near term and it’ll take something else to push stocks materially higher from here.” Click here to read the full article.

Sevens Report Analysts Quoted in MarketWatch on May 25th, 2023

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Gold and silver settle at their lowest prices in about 9 weeks

“The debt ceiling drama is getting most of the attention, but a hawkish shift in tone by a list of [U.S. Federal Reserve] officials recently has holstered the dollar and sent policy-sensitive rates (beyond those durations reacting to the debt negotiations) higher,” analysts at Sevens Report Research wrote on Thursday’s newsletter. Click here to read the full article.

Is the Fed Really Going to Turn That Dovish?

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What’s in Today’s Report:

  • Why Did the Nasdaq Rally Yesterday?
  • Is the Fed Really Going to Turn That Dovish?
  • Charts: 2-Yr Note Yield Plunges the Most in Decades, VIX Has Further to Run

Stock futures are cautiously higher and yields are bouncing globally following better than expected economic data overnight and more stable price action in U.S. bank shares while traders continue to unwind hawkish Fed policy bets ahead of today’s CPI report.

Economically, the U.K’s ILO Unemployment Rate came in at 3.7% vs. (E) 3.8% which is pressuring Gilts (down 11 bp) and lifting yields across Europe and the U.S. while the NFIB Small Business Optimism Index rose to 90.9 vs. (E) 89.9.

Looking into today’s session, focus will be on the February Consumer Price Index release before the bell with the headline expected to rise 0.4% m/m (6.0% y/y) while the all-important Core CPI figure is also expected to rise 0.4% m/m (5.5% y/y).

There are no Fed speakers today so if the inflation data comes in hot, expect a rebound in yields that would likely pressure equities as traders reassess the less-hawkish policy expectations that have been priced into rates markets since the SVB debacle began.

Additionally, bank shares (KBE) will remain in focus and if contagion fears persist and financial stocks remain under pressure, it will be hard for the broader equity market to meaningfully stabilize, much less recover some of the recent losses.

Tom Essaye Quoted in S&P Global on September 19th, 2022

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Persistent inflation to push Fed to tighten more, delay rate peak

From a Fed standpoint, obviously they cannot even think about stopping until this [inflation] number gets down to something more tenable…said Tom Essaye, a trader and founder of financial research firm The Sevens Report. Click here to read the full article.