1. Moving the markets

Despite an early bounce, the major indexes hit the skids due to disappointing economic data. The reversal started with the release of the Consumer Confidence Index, which crashed to a reading of 98.7 in June from a prior 103.2 vs. an expected 100.0.

Additionally, as ZeroHedge reported, the actions of Americans, dumping their savings to afford the cost of living, suggests that Conference Board Expectations have further to fall. Finally, for the first time since 2019, “soft” survey data has dropped below “hard” real economic data, while “Hope” is getting hammered.

Ouch! None of this bodes well for our economic future, and especially for the prospect of increased earnings, and therefore stock prices, in an environment where 67% of economic growth is generated by consumers, which appear to be tapped out.

As a result, the major indexes got spanked with the S&P 500 dropping back into bear market territory, after just having climbed out of it last Friday. Hawkishness dominated the tone of the market, as rate hike expectations climbed again.

Bond yields ripped and dipped and ended the session just about unchanged, but the US Dollar recovered from its recent weakness and rallied. Gold had a great overnight session but was sold later with the precious metal dipping slightly into the red.  

With two more trading days till the end of this horrific quarter, will the bulls be able to recoup some of their losses?

1. Moving the markets

Traders continued their struggle of determining whether Friday’s comeback rally was truly indicative of stocks having found a bottom or just experienced another dead-cat-bounce. While I believe the latter is the case, we could see more upward momentum through the end of this quarter.

Today, markets were just aimlessly chopping around and digesting the various news items that simply added to intra-day volatility, of which we might see more during this week. Not helping matters was the plunge in the Dallas Fed index, which measures the Manufacturing business activity and the corresponding forecast, neither of which showed optimistic numbers.

On the other hand, as ZeroHedge reported, the Economic Surprise Index showed some good news in that it ticked up slightly. That tiny little improvement was enough to send Rate Hike Expectations higher, as hawkish views were suddenly dominant again.   

In the end, the major indexes lost some of Friday’s mojo and closed lower, while last week’s short squeeze ran out of ammo. Bond yields reversed as well and headed higher with the 10-year adding 7.6 bps to close at 3.21%.

The US Dollar ended the session unchanged, while Gold popped and dropped and closed a tad lower.

Nothing was gained and not much was lost during these few hours of meaningless meandering.  

1. Moving the markets

Bullish attempts to keep yesterday’s comeback alive ended up failing, as the major indexes surrendered early gains and ended up the hugging their respective unchanged lines with not much to show for.

Initially, stocks had blasted higher, despite weakness in the futures markets. For a while, it looked like we were facing another “bad news is good news” scenario, as Fed President Harker opined that the “US economy might see a modest contraction in growth,” along with “we could have a couple of negative quarters.”  

This negative talk was immediately translated as being a positive for the markets, as it would move the recession into the more immediate future, which would then result into inevitable rate cuts and a new QE program. That “should” translate into a revival of the bull market, or so the theory goes.

Regarding inflation, the Fed is way behind the curve and needs to implement a far more aggressive tightening cycle. Analyst Simon Ree tweeted this amazing stat:

Once inflation goes above 5%, it has never come back down without the Fed Funds rate exceeding the CPI.

As ZH explained, the problem is that the current CPI is 8.58% and the Fed Funds rate is only 1.58%. Graphically, it looks like this. That means the Fed would need to hike at least 7% until inflation would start to roll over and potentially allow for the so-called soft landing. Good luck with that…

Despite falling bond yields, equities could not sustain any upward momentum. The 10-year plunged 12 bps to close at 3.16%. The US Dollar dumped after yesterday’s pump, while gold meandered aimlessly but closed a tad in the green.

Sure, we could see another short squeeze into the end of this quarter, but in my mind, its duration will be questionable.