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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. 

FOMC Preview (Watch the Dots)

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What’s in Today’s Report:

  • FOMC Preview (Watch the Dots)
  • Why Yesterday’s CPI Boosted the “Growth On” Trade
  • Gold Update:  Are the 2023 Highs Already In?

Futures are modestly higher following a quiet night of news as markets look ahead to the FOMC decision and expected pause in rate hikes.

Economic data was mixed overnight as UK Industrial Production missed estimates (-0.3% vs. (E) -0.1% in manufacturing) while Euro Zone IP slightly beat (1.0% vs. (E) 0.9%), but neither number is moving markets.

Today focus will be on the FOMC Decision and the consensus expectation is that the Fed will pause.  But, it’s not clear how many additional 2023 rate hikes the “dots” will show, and that will determine if the Fed decision is hawkish or dovish (more on that inside).

Away from the Fed we also get the May PPI (E: -0.1% m/m, 1.6% y/y) and Core PPI (E: 0.2% m/m, 2.9% y/y) and if this metric comes in under expectations that’ll boost the “Immaculate Disinflation” expectation and should help cyclical sectors extend the rally.

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.

A “Make or Break” Week for the Rally

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What’s in Today’s Report:

  • A “Make or Break” Week for the Rally
  • Where the Opportunity is in Stocks Right Now
  • Weekly Market Preview:  Will Data Confirm “Goldilocks” Optimism?
  • Weekly Economic Cheat Sheet:  CPI Tuesday, Fed Wednesday, Key Growth Data Thursday

Futures are slightly higher on momentum from last week’s rally, as it was a very quiet weekend of actual news and investors are looking ahead to multiple important market catalysts this week.

Economically, the only notable number was Japanese PPI which rose 5.1% y/y vs. (E) 5.7% y/y in what is the latest sign of global disinflation.

Oil declined more than 2% overnight on over supply concerns as Russia is largely ignoring its production quota.

Today there are no notable economic reports nor any Fed speakers, so barring any major surprises markets should be relatively calm ahead of tomorrow’s CPI report, Wednesday’s FOMC decision and Thursday’s important economic data.

A Tale of Two Trades

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What’s in Today’s Report:

  • A Tale of Two Trades

Futures are slightly lower as markets digest Thursday’s rally following a very quiet night of news.

Economically, the only notable report overnight was Chinese PPI, which feel –4.6% vs. (E) -4.2% and provided the latest sign that global disinflation is potentially accelerating.

Politically, former President Trump was federally indicted for illegally retaining classified documents, although that shouldn’t impact markets.

Today there are no economic reports and no Fed speakers, so near term technicals should drive trading with all eyes focused in whether the S&P 500 can break above 4,300 for the first time in over a year.

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.

Tom Essaye Quoted in Yahoo Finance on May 31st, 2023

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Stock Rally Loses Steam After AI-Fueled Euphoria: Markets Wrap

Yes, AI does have great potential and it does appear to be the ‘next big thing’. But I don’t see how that promise can offset the reality of higher interest rates and more pressure on the economy, at least not for a sustainable period…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

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.

Tom Essaye Quoted in Swissinfo.ch on May 30th, 2023

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“Yes, AI does have great potential and it does appear to be the ‘next big thing’,” wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. “But I don’t see how that promise can offset the reality of higher interest rates and more pressure on the economy, at least not for a sustainable period.” Click here to read the full article.

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