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Sevens Report – Is Conflicting Data Signaling a Shift in the Economy?

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What’s in Today’s Report:

  • Is Conflicting Data Signaling a Shift in the Economy?
  • Weekly Market Preview:  Earnings Take Center Stage (Lots of Key Reports This Week)
  • Weekly Economic Cheat Sheet:  Is Disinflation Continuing? (Key Inflation Stats on Friday)

Futures are sightly lower following a quiet weekend of news as markets look ahead to key earnings reports and economic data this week.

Economically, the only notable report was German IFO Business Expectations, which slightly beat estimates.

Debt ceiling headlines will increase this week as Republicans try to pass a debt ceiling bill, and if it fails to pass that will increase debt ceiling anxiety in the markets.

Today there is only one economic report, Chicago Fed National Activity Index (E: -0.02), and barring a major surprise that shouldn’t move markets.

Focus then will be on earnings, and especially the First Republic results after the close (estimates are $0.72/share).  Markets will want to see stability from what’s viewed as one of the most vulnerable regional banks.  Other notable earnings today also include KO ($0.65) and WHR ($2.44) which will give us insight into consumer spending.

 

Special Technical Market Update Delivered Today

The special technical report will be delivered via email later this morning.

Due to increased demand for more detailed technical insights from our subscribers, we have prepared a separate, special market update that provides detailed analysis of the current technical state of this market, including:

  • Major stock indices
  • Stock sectors
  • Investment styles (growth vs. value) and
  • Major trends in Treasury, commodity, and currency markets.

As the economy (and possibly markets) approach a tipping point and the Fed readies for the likely final rate hike, we can expect more volatility and conflicting fundamental economic data. Having high quality, plain-English technical analysis can help us better navigate this market.

Tyler Richey, Sevens Report CMT, has been the lead analyst on this special report, and we are all excited to deliver this value-add research to subscribers today.

How the Debt Ceiling is Starting to Impact Markets

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What’s in Today’s Report:

  • How the Debt Ceiling is Starting to Impact Markets

Futures are slightly lower despite solid economic data overnight, as markets await this morning flash PMIs.

EU and UK flash composite PMIs were better than expected at 54.4. vs. (E) 54.0 for the Euro Zone and 53.9 vs. (E) 52.4 for the UK, and both numbers are pushing back on the global recession narrative.

Today the focus will be on the April Flash Composite PMI (E: 50.7) and after yesterday’s soft Philly data, markets will absolutely want to see solid numbers. If that happens, we should expect a rebound from yesterday’s declines.

We also get another Fed speaker, Cook at 4:35 p.m. ET and some additional earnings: PG ($1.32), HCA ($3.99), SLB ($0.61), FCX ($0.46), RF ($0.65), SAP ($1.25).

Tom Essaye Quoted in Barron’s on April 19th, 2023

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The Dow Slips as Earnings Ramp Up

“If earnings news is not encouraging today, and yields continue to move higher over the course of the session, the selling pressure on equities is likely to continue and liable to accelerate,” wrote Tom Essaye, founder of the Sevens Report. Click here to read the full article.

Tom Essaye Quoted in MarketWatch on April 18th, 2023

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Why bears can’t keep the stock market down despite bad news

As such, the pain trade has been higher for all of 2023 and that’s helping support stocks despite decidedly mixed fundamentals (and mixed is being generous),” Tom Essaye, founder of Sevens Report Research wrote. Click here to read the full article.

Tom Essaye Quoted in MarketWatch on April 19th, 2023

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Why is the stock market so resilient? Blame the ‘pain trade’.

The stock market’s resilience so far in 2023 is an example of a well-worn but sometimes useful market concept known as the “pain trade.” Tom Essaye, founder of Sevens Report Research, defined it succinctly in a Tuesday note: “The goal of the market is to extract the most amount of pain from the greatest number of people.” Click here to read the full article.

Sevens Report Analysts Quoted in ZeroHedge on April 18th, 2023

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WTI Rises After Bigger Than Expected Crude Draw

Looking ahead, economic data will be in focus as a “strong economic recovery in China and the avoidance of hard landings in Europe and the U.S. are both priced into the market with WTI trading with an $80 handle,” said analysts at Sevens Report Research in Tuesday’s newsletter. Click here to read the full article.

Special Technical Report Coming Monday

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What’s in Today’s Report:

  • Special Technical Report Coming Monday
  • Why Did the VIX Just Hit 52 Week Lows?
  • EIA Analysis and Oil Market Update
  • Two Notable Observations from a Quiet Trading Day

Futures are moderately weaker following a disappointing night of earnings.

TSLA, NOK, FFIV and TSMC all missed earnings and provided cautious commentary or guidance, and that’s increasing concerns about an economic slowdown.

Today there are numerous potential catalysts including important economic reports, lots of Fed speak and more earnings reports.

Starting with the data, the key report today is Philly Fed (E: -19.4) and markets will want to see if it confirms the rebound we saw in Empire (if it does, expect some stock weakness as Fed expectations become slightly more hawkish).  We also get Jobless Claims (E: 242K) and any move closer to 300k will be welcomed as it signals a slightly more normal labor market.

Turning to the Fed, there are multiple speakers today including Waller (12:00 p.m. ET), Mester (12:20 p.m. ET), Logan (3:00 p.m. ET) and Bostic (5:00 p.m. ET) and it will be notable to see if they all push back on the rate cut expectations in the markets.

Finally, on earnings, results lately have been underwhelming so these reports are becoming more important.  Earnings we’re watching today include: T ($0.58), TSM ($1.21), AXP ($2.63), UNP ($2.57), PPG ($1.55), CSX ($0.43), STX ($0.18).

Why Stocks Won’t Drop Part II: The Economy

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What’s in Today’s Report:

  • Why Won’t Stocks Drop Part II: The Economy
  • VIX Falls to 52-Week Lows – Chart

Hawkish money flows are dominating markets this morning with stock futures falling, yields rising and oil and gold both testing support after hot inflation data overnight.

Economically, U.K. CPI was 10.1% vs. (E) 9.8% y/y in March while the Eurozone Narrow Core HICP reading rose 0.1% to 5.7% meeting estimates. The two inflation prints are causing a hawkish shift in central bank policy expectations this morning, which is in turn rekindling hard landing fears.

Looking into today’s session, there are no notable economic reports today however there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could impact both bond and equity markets.

As far as the Fed goes there are two speakers today, but both are after the close: Goolsbee (5:30 p.m. ET) and Williams (7:00 p.m. ET).

That will leave investor focus on earnings early with more big banks and notable consumer financial companies reporting ahead of the bell including: MS ($1.67), CFG ($2.15), SYF ($1.49), ALLY ($0.88), USB ($1.13), and TRV ($3.64), while TSLA ($0.85) and IBM ($1.27) will release results after the close.

Bottom line, the 2-Yr Treasury yield is testing a more than one-month high this morning and stocks are coming for sale broadly which underscores deteriorating sentient among investors with the S&P 500 trading well above 4,100 this week. And if earnings news is not encouraging today, and yields continue to move higher over the course of the session, the selling pressure on equities is likely to continue and liable to accelerate.

Sevens Report Co-Editor Tyler Richey Quoted in MarketWatch on April 17th, 2023

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Oil futures finish lower as traders eye prospects for energy demand

Oil futures finished with a loss on Monday, with traders weighing the prospects for energy demand. A “shockingly strong” Empire State Manufacturing Index reading Monday helped to live the odds of an interest-rate hike by the Federal Reserve in May, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Why Won’t Stocks Drop?

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What’s in Today’s Report:

  • Why Won’t Stocks Drop? It’s Partially Sentiment
  • Empire State Manufacturing Index Takeaways
  • Chart – How Oil Prices Are Influencing the S&P 500 Right Now

Stock futures are higher this morning as Chinese economic data was mostly better than expected while investors await more big bank earnings today.

Economically, Chinese Retail Sales jumped 10.6% y/y vs. (E) 7.0% in March which helped Q1 GDP to rise 4.5% y/y vs. (E) 3.9%. Other metrics including Fixed Asset Investment and Industrial Production were less encouraging, but the strong consumer data was well received by investors overnight.

Meanwhile U.K. wage growth rose 5.9% vs. (E) 5.1% in March which adds some pressure to the BoE to remain aggressive as there is clearly more work to do to get inflation under control.

Looking into today’s session, focus will be on earnings early with BAC ($0.79), GS ($8.14), JNJ ($2.51), and BK ($1.09) reporting quarterly results before the open while NFLX ($2.81) and UAL (-$0.73) report after the close.

After the open, investors will be watching for the only notable economic release today: Housing Starts and Permits (E: 1.400 million, 1.431 million) before there is a 52-Week Treasury Bill auction at 11:30 a.m. ET which may offer some fresh insight into market expectations for Fed policy over the next year.

Finally, the Fed’s Bowman speaks at 1:00 p.m. ET and investors will be looking any further clues about May rate hike plans and longer term policy outlook.