The tide has turned again in the US stock market this past week.
Stocks were bullish all week and now all the bulls are taking a victory lap while the bears up and down are swearing it’s a bear market rally.
Here are the returns of US indices for the week:
- S&P 500: +5.5%
- Nasdaq 100: +7.23%
- Dow Jones Industrial Average: +4.6%
- Russell 2000: 7.6%
Technical View: Stocks
From a technical perspective, the downtrend pattern in the S&P 500 has officially broken and we have now entered range-bound territory.
After recent price action, most people expect an immediate shift to an upward trend, or a trend reversal. But in reality, when the trend ends (rather than climactic death), they ‘rest’ and trade in a short range before choosing its next direction.
This is a basic principle of some of the most successful traders: markets go through periods of range expansion and range contraction. Now that the market has reached some semblance of balance, at least relative to recent history, don’t be surprised to wake up to a bearish market for the next few weeks.
Because bears are the loudest and most confident in their announcements, one of the popular narratives is that the current bullish price action in stocks is a classic “bear market rally.” That may very well be true, but there are a few reasons why sales haven’t happened yet.
First, we discount current price levels by about 15% to all-time highs after a nearly seven-month downward trend. It is hardly a believable bear market and can more accurately be called a long correction.
Moreover, if you take a look under the hood of the market, things don’t look as bad as they seem. It is very telling which rallies emerge from downtrends. While during the stock market’s “reflation” era in 2021, tons of defensive and value stocks fared well on market rallies.
During this rally, we are seeing significant outperformance from pro-cyclicals such as technology, consumer cyclicals, as well as small caps showing relative strength against mega-caps, which is the Russell 2000 vs. As can be seen in the Dow.
And the ultimate measure of risk-on appetite in equities, the ARK Innovation ETF (ARKK), has shown steady relative strength to the S&P 500, which to me is a sure sign that we not In a bear market.
Technical View: Crude Oil
When it comes to crude oil, we are once again nearing the decisive end of a multi-month range.
When crude tested the top end of this range in June and tried to break out, the price was quickly rejected, sending the price back inside the range and starting a one-month downtrend that is still ongoing.
Importantly, crude oil is trending down in This significant bottom end of the range significantly increases the odds that the level is broken.
Chart of the Week: House Prices
Look, the housing market isn’t as strong as it was six months ago. Mortgage rates are rising fast, prices are falling across the board, and inventory is sitting on the market for a long time, especially in previously strong markets like Austin, TX.
However, the median US home price just hit an all-time high. If we are going to go into recession in the next couple of quarters, expect more pain in the housing market.
Federal Reserve Watch
This coming Wednesday we will have a very consequential Fed meeting. Traders who bet will be at least 75 basis points, if not 100 basis points.
With a few economic surprises in recent weeks like a hot jobs report, a hot inflation report and surprising Bank of America card spending data showing that consumers aren’t spending like in a recession, there will be a lot of pressure on the Fed. to be even more Hockey than recently.
Powell is likely feeling a lot of pressure to make a statement. Beat the market into submission with eagerness.
But on the other hand, it comes in handy because there seems to be light at the other end of the tunnel. It is very likely that the next CPI print will be much lower than the June print, as commodity prices have fallen significantly of late. A meaningfully lower print could support Powell to relax on rate hikes.
The market is currently pricing in a 73% probability of a 75bp increase and a 27% probability of a 100bp increase:
Last week’s news
- Snap (SNAP) reported poor earnings and shares fell 27%. The company also suspended his guidance. However, they outperformed new user expectations and launched a $500M buyback program.
- As usual, the rally in cannabis stocks was a “news-selling” event, as they denied news of the legislation being introduced in the US Senate.
- Russia and Ukraine plan to sign an agreement to resume grain and fertilizer exports from the Black Sea
- Twitter Vs. The judge chosen in the Musk case is Kathleen McCormick, notable because she forced a reluctant buyer to close a merger deal, a rare occurrence in Delaware courts.
- A judge in the Twitter/Musk case has granted Twitter’s request for a speedy trial
- Amazon ( AMZN ) is using Rivian ( RIVN ) vans to deliver packages in select metro areas.
- Russia restarts Nord Stream pipeline, gas flows to Europe again after 10-day shutdown
- The tech hiring pause continues this week with new breaks at Microsoft and Google
- Netflix ( NFLX ) beat earnings and the stock is up nearly 30% from recent lows.
- Bank of America card spending data shows that consumers are still spending aggressively, especially on travel.
Earnings coming next week
The stock market was helped last week by some giants like Netflix ( NFLX ) and Tesla ( TSLA ) reporting positive earnings, which is being seen as an indicator for the rest of the market.
So far, 70% of companies have exceeded EPS expectations, down from 76% last quarter, although with expectations of a slowdown baked-in, the market seems pretty happy with earnings results so far.
Next week is the week of the FANGs. We get Apple (AAPL), Amazon (AMZN), Alphabet (GOOG) and Microsoft all in one week. Additionally, we get dozens and dozens of large-caps and mega-caps, with the Dow 30 making up a large portion of reporting.
Next week’s reports will determine the direction of the market for the next few months.
Here are the most notable earnings reports coming out this week. Because there is so much reporting out there, we’re bringing you the most notable and potentially volatile reports. Check out the earnings calendar for a more complete list:
Monday, July 25:
- Newmont (NEM)
- Koninklijke Phillips (PHG)
- RPM International (RPM)
- SquareSpace (SQSP)
- NXP Semiconductors (NXPI)
- Cadence Design Systems (CDNS)
- Packaging Corp of America (PKG)
- Whirlpool (WHR)
Tuesday, July 26:
- Coca-Cola (KO)
- McDonald’s (MCD)
- Microsoft (MSFT)
- Alphabet (GOOG)
- Visa (V)
- Texas Instruments (TXN)
- Chipotle (CMG)
- Enphase Energy (ENPH)
- Moody’s Corp (MCO)
- United Parcel Service (UPS)
- Raytheon Technologies (RTX)
- 3M (MMM)
- General Electric (GE)
- UBS Group (UBS)
- MSCI (MSCI)
- NVR (NVR)
Wednesday, July 27:
- Meta Platforms (META)
- Qualcomm (QCOM)
- Ford Motor (F)
- Etsy (ETSY)
- T-Mobile (TMUS)
- Bristol Myers Squibb (BMY)
- Boeing (BA)
- ADP
- CME Group (CME)
- Sherwin Williams (SHW)
- Shopify (SHOP)
- Kraft Heinz (KHC)
- Hess Corp (HES)
- Spotify (SPOT)
Thursday, July 28:
- Apple (AAPL)
- Amazon (AMZN)
- Intel (INTC)
- MasterCard (MA)
- Pfizer (PFE)
- Merck (MRK)
- Comcast (CMCSA)
- Honeywell (HON)
- Anheuser-Busch (BUD)
- Altria (MO)
- Keurig Dr Pepper (KDP)
- Hershey (HSY)
- Southwest Airlines (LUV)
Friday, July 29:
- Exxon Mobil (XOM)
- Procter & Gamble (PG)
- Chevron (CVX)
- ABV (ABBV)
- AstraZeneca (AZN)
- CBOE Global Markets (CBOE)
Economic data next week
Tuesday, July 26:
- S&P Case Shiller National Home Price Index (YoY)
- Consumer Confidence Index
- New home sale
Wednesday, July 27:
- Federal Reserve meeting
- The house is pending sale
Thursday, July 28:
- GDP, First Edition
- Initial and continuing claims
- PCE Inflation Report
- consumer spending
- Chicago PMI
- University of Michigan Consumer Sentiment Index