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What Caused Yesterday’s Selloff? (It Wasn’t the Fitch Downgrade)

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What’s in Today’s Report:

  • What Caused Yesterday’s Selloff? (It Wasn’t the Fitch Downgrade)
  • Jobs Report Preview
  • EIA Analysis and Oil Market Update

Futures are modestly lower following Wednesday’s selloff on more disappointing earnings and mixed economic data.

Economically, the EU Composite PMI slightly missed estimates (48.6 vs. (E) 48.9) as recession worries creep higher.

Tech earnings underwhelmed again, with disappointing results from QCOM and PYPL (both stocks down 7%-ish).

Today will be a busy day of data and earnings.  First, the BOE is set to hike rates 50 bps, but markets will want to see if they signal this is the last hike of the cycle.

Turning to the U.S., there are several important economic reports today including: Jobless Claims (E: 225K), ISM Services PMI (E: 53.0) and Unit Labor Costs (E: 2.6%).  Investors need Goldilocks economic data to help stabilize stocks, and if these reports are stronger than expected, look for Treasury yields to rise and for stocks to fall (like what happened yesterday).

Finally, on earnings, we get results from two of the biggest stocks in the market after the close:  AAPL ($1.19) and AMZN ($0.34).

Sevens Report Co-Editor, Tyler Richey, Quoted in Market Watch on July 31st, 2023

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Stocks could sink into a bear-market recession, says technician. Here are five signals on when it likely starts.

“We continue to respect the rally and acknowledge the trend in equities is still higher, but we remain ‘patient bears’ with regard to stocks given the deeply inverted yield curve,” Tyler Richey, co-editor at Sevens Report Research wrote in a Monday report.

“We view the fact that most Treasury spreads have inverted to levels not seen since the early 1980s as a clear warning sign that the more than 500 basis points of Fed rate hikes in less than 18 months was way too much for the economy to weather,” noted Richey. 

Click here to read the full article.

Could the Yield Curve Be Wrong This Time?

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What’s in Today’s Report:

  • Could the Yield Curve Be Wrong This Time?
  • Chart: 10s-2s Yield Curve Spread Near Multi-Decade Lows

Futures are lower this morning as economic data confirmed weakness in the global manufacturing sector while the RBA unexpectedly paused their rate hiking cycle at the conclusion of their latest meeting overnight.

Economically, China’s Manufacturing PMI fell to a contractionary reading of 49.2 vs. (E) 50.1 while the Eurozone PMI met estimates at a very weak reading of 42.7, underscoring the challenges facing the global manufacturing sector.

Looking into today’s session, there are several economic reports to watch: ISM Manufacturing Index (E: 46.5), Construction Spending (E: 0.6%), and JOLTS (E: 9.650 million). Investors will be looking for better than feared manufacturing data in the U.S. and signs that the domestic labor market is softening but not collapsing.

Earnings season also continues with multiple notable companies reporting quarterly results today including: UBER ($0.00), PFE ($0.57), CAT ($4.51), and JBLU ($0.40) before the open and AMD ($0.57), SBUX ($0.95), and AIG ($1.54) after the close.

What Caused Thursday’s Reversal?

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What’s in Today’s Report:

  • What Caused Thursday’s Reversal?
  • How Economic Data Was “Too Hot” Yesterday

Futures are modestly higher despite a slightly hawkish surprise from the Bank of Japan.

In a move that was telegraphed in trading on Thursday, the BOJ made a slightly hawkish shift and allowed the yield on 10-year Japanese bonds to move above the previous cap of 0.50%.  Technically, this is a hawkish move, although it’s a very small one.

Today focus will be on inflation, as we get two of the bigger inflation reports in the Core PCE Price index (E: 0.2% m/m, 4.2% y/y) and Employment Cost Index (E: 1.1%).  Markets will want to see continued signs of disinflation (so numbers at or below estimates) while readings that are higher then expected will push Treasury yields higher, and that will be a headwind on stocks (as we saw yesterday).

Earnings also continue and some notable reports we’re watching include:  XOM ($2.00), PG ($1.32), CVX ($2.95), CL ($0.75).

Current Market Glossary (For Clients & Prospects)

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What’s in Today’s Report:

  • Current Market Glossary (For Clients & Prospects)

Futures are slightly lower following a night of disappointing tech earnings.

NFLX, TSLA and TSM all posted disappointing earnings results (stocks down 3% – 6% pre-market) and that’s weighing on Nasdaq and S&P 500 futures.

There was no notable economic data overnight.

Today will be another busy day of data and earnings results.  On the economic front, the two key reports are Weekly Jobless Claims (E: 250k) and Philly Fed (E: -10.0), and as you can guess (and especially at these stretched valuations) markets will want to see more Goldilocks data (so stable claims and Philly and falling prices).  We also get Existing Home Sales (E: 4.23M) but, barring a big miss, that shouldn’t move markets.

Turning to earnings, focus today is on industrials and consumer/healthcare names, and some important results to watch include:  AAL ($1.58), TSM ($1.07), JNJ ($2.61), PM ($1.48), COF ($3.31), CSX ($0.49), and PPG ($2.14).

Market Multiple Table Chart (July Update)

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What’s in Today’s Report:

  • Market Multiple Table Chart (July Update)
  • Why More Goldilocks Data Sent Stocks Higher Again Tuesday

Futures are little changed ahead of a busy day of earnings and despite more encouraging news on global disinflation.

UK CPI rose less than expected, gaining 0.1% vs. (E) 0.4% m/m and 7.9% vs. (E) 8.2% y/y, providing bullish investors more evidence that inflation is declining globally, although that good news was partially offset by a very slightly higher final look at EU HICP (up 5.5% y/y vs. 5.4%).

Today focus will turn to earnings and the key reports to watch are: TSLA ($ 0.82), NFLX ($2.83) and GS ($3.25), as those results will help set the tone for the start of earnings season (results from companies up to today have been fine, although it’s very, very early).    Other notable earnings include:  ASML ($4.97), USB ($1.13), UAL ($3.99), and IBM ($2.00).

Economically, the only notable number today is Housing Starts (E: 1.48M) but barring a shocking miss, that shouldn’t move the broader markets.

What Pushes Stocks Higher from Here?

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What’s in Today’s Report:

  • What Pushes Stocks Higher from Here?
  • Weekly Market Preview:  Earnings Take Center Stage
  • Weekly Economic Cheat Sheet:  Growth Data in Focus this Week

Futures are slightly lower following mixed Chinese economic data and a potential further escalation of the Russia/Ukraine war.

Chinese economic data was mixed as GDP and Retail Sales both missed estimates, while Industrial Production beat, and the data will keep markets  wanting more stimulus.

Possibility of further escalation of the Russia/Ukraine war increased after Ukraine claimed responsibility for the destruction of a bridge linking Crimea and Russia.

Today focus will be on the first data point for July, the Empire Manufacturing Index (E: -4.3).  Markets will want to see this number be stronger than expectations and ideally turn positive, furthering the “Golidlocks” market narrative of falling inflation but stable growth.

What the CPI Report Means for Markets

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What’s in Today’s Report:

  • What the CPI Report Means for Markets
  • EIA and Oil Market Analysis

It’s “green on the screen” as global indices and U.S. futures extend yesterday’s CPI driven rally.

Economically, UK Industrial Production (IP) was better than feared (down –1.2% vs. (E) -1.5%) while EU IP slightly missed estimates (0.2% vs. (E) 0.5%).

Earnings season officially begins today and the first reports are solid, as PEP and DAL both beat earnings estimates.

Today focus will be on economic data, specifically Jobless Claims (E: 245K) and PPI (E: 0.2% m/m, 0.4% y/y, Core PPI E: 0.2% m/m, 2.8% y/y).  If jobless claims are mostly stable and PPI falls more than expected, markets should extend yesterday’s “Immaculate Disinflation” driven rally. Finally, there is one Fed speaker today, Waller (6:45 p.m. ET), but markets are ignoring hawkish rhetoric right now so he shouldn’t move markets.

Explaining Current Market Risks to Clients (And Prospects)

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What’s in Today’s Report:

  • How to Explain Risks in This Market to Clients/Prospects
  • Mannheim Used Vehicle Value Index Takeaways (Chart)

Futures are slightly higher while most international markets rallied overnight thanks to news of more Chinese government support for the property sector and steady EU inflation data.

German CPI met estimates of 0.3% m/m and 6.4% y/y in June, both unchanged from May, while the ZEW Survey was inline with expectations on the headline but Economic Sentiment deteriorated to -14.7 vs. (E) -10.2.

Domestically, the NFIB Small Business Optimism Index came in at 91.0 vs. (E) 89.8 in June which is helping bolster investor sentiment in the premarket.

There are no additional economic reports today and just one Fed speaker on the calendar: Bullard (9:00 a.m. ET) which will leave investors looking ahead to tomorrow’s critical CPI report.

Jobs Day

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What’s in Today’s Report:

  • How the Two-Year Yield Caused Yesterday’s Drop in Stocks
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as investors wait for this morning’s jobs report.

Economic data underwhelmed as Japanese Household Spending (-1.1% vs. (E) 0.5%) and German Industrial Production (-0.2% vs. (E) -0.1%) both missed expectations.

Taiwan exports also fell more than expected, down 23.4%, and that’s adding to general anxiety about future global growth.

Today the only major event is the June jobs report and expectations are as follows:  213K job adds, 3.7% UE Rate, 0.3% wage increase m/m and 4.2% y/y.  As we saw from yesterday’s ADP report, a “Too Hot” number will spike yields and further pressure stocks, as the rise in yields is now getting high enough to be a headwind on the market.  Conversely, a “Too Cold” number will increase stagflation worries.

A job adds number in the 100k range coupled with an increase in the unemployment rate and a drop in wages remains the best outcome for stocks, and if we get that number don’t be surprised if the S&P 500 recoups all of yesterday’s losses.