[Chart courtesy of MarketWatch.com]

1. Moving the markets

Another wild session had the markets bobbing and weaving, yet the major indexes managed to eke out a small gain. All eyes had been on the release of the Fed’s FOMC minutes from June, which indicated that they had not wavered from their commitment to bring inflation down. The unanswered question was whether we will see a 50bps or 75bps hike in rates later this month.

Traders continued to ascertain whether the Fed would return to its easy money policy not because they had success reducing inflation (they did not) but more so due to weakening economic conditions. So far, there has been no clear answer.

Despite energy rebounding late in the session, it still turned out to be the worst performer of all sectors, with crude oil taking another hit and remaining below the $100 level. It was a “going nowhere” kind of session, as yesterday’s short squeeze died on the vine.

Despite bond yields storming back with a vengeance, as the 10-year rose almost 13 bps to close at 2.93%, stocks were not negatively affected—yet.  

The US Dollar continued to edge higher and built on yesterday’s gains, while Gold trended lower to end the day at $1,737.

The question in my mind is this one: Can the upcoming earnings season provide enough impetus via positive numbers and improved outlooks to battle the fact that we are sliding into a recession?  

Hmm…

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The unpredictable and wild market swings continued today, when the major indexes crashed at the opening with the Dow dumping some 700 points.

As we’ve seen numerous times in the past, a slow and steady climb ensued pulling stocks out of a deep hole, which helped the S&P end a tad in the green, thereby erasing an early 2% loss, while the Dow headed into a much-improved red close. The Nasdaq fared the best and posted a 1.75% gain.

The markets have now dropped four of the past five weeks and remain stuck on the bearish side of their respective trend lines. Economic growth concerns in the face of worsening inflation have added confusion and uncertainty to the markets, as the latest FedNow indicator, which showed 2 consecutive quarters of negative growth, has confirmed a recession.

Adding insult to injury was the fact that 10-year bond yield and the 2-year yield inverted today, a move that has historically confirmed a recession in the making. It simply means that when short-term yields trade above long-term ones, it’s a sign that investors anticipate a slowdown, which is usually accompanied by rate cuts.   

That puts the Fed between a rock and a hard place, since hiking rates to battle inflationary forces will not bode well within a slowing economy.

Given this anticipated slowdown, and the accompanying reduction in demand, it came as no surprise that Crude Oil dumped 8% to close below $100 and rate-hike expectations tumbled, as ZH pointed out.  

The US Dollar rallied causing Gold to take a hit with the precious metal losing its $1,800 level. Interestingly, junk bonds did not seem to agree with today’s rally, as Bloomberg shows in this chart. Since they tend to be a leading indicator, we may see more downside in equities coming our way.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Dip buyers and buy-and-holders suffered through another wild session not unlike the last quarter and the first half of 2022, during which the S&P 500 headed towards its worst result since 1970. But the latest update from Bloomberg shows that the index was down 21.01% in 1970 H1, but we are currently down 21.22% H1, so according to them this would be the worst since 1962… 60 years ago.

YTD, there was simply no place to hide with the Dow being down more than 15%, the S&P 500 having lost more than 20%, while the Nasdaq fared the worst by having surrendered almost 30%. And if you thought bonds were a safe place to be, you were sorely disappointed, as the widely held 20-year T-Bond ETF TLT was crushed over 23%.

Buying the three major dips in 2022 proved to be nothing but an exercise in futility, as investors did not recognize that the market manipulation of the past decade had run its course and things are different now. The much-hoped for “Fed Put” seems to have vanished—at least for the time being.  

As ZeroHedge pointed out, despite the Fed’s favorite inflation indicator dipping, US consumer spending slowed down in May. On a YoY basis, incomes grew at 5.3% but spending rose at 5.8%, which is not exactly a solid trend that would bode well for the future of the economy. Adding insult to an already injured and squeezed consumer is the Personal Savings rate, which is heading in the wrong direction.

False hope about the economy was the keyword of the past quarter, as the Economic Surprise Index simply crashed and dashed expectations of a speedy recovery. This was clearly represented in the bond arena where yields rallied sharply during the first half of June, with the 10-year touching the 3.5% level, before concerns of a weakening economy pulled the yield back to the 3% level.  

In the end, global equity and debt markets were pounded and lost a spectacular $31 trillion in value, as Bloomberg demonstrates in this chart. Confidence indicators across major economies are pointing towards a downturn. My Trend Tracing Indexes support that view, which means being out equities/bonds and sitting safely on the sidelines is the way to survive what’s coming.

On a personal note, I will be out tomorrow, so this will be the week-ending commentary with the StatSheet being posted later today.

I wish you a Happy 4^th of July!

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite an early pop in the major indexes, the struggle of finding a bottom, off which to launch a bullish rebound from, eluded traders and algos alike. Absent of a major Ramp-A-Thon tomorrow, the last day of the quarter, Wall Street will be left swallowing the bitter pill that the worst half of a year since 1970 has become reality.

Yesterday’s weak consumer sentiment drove another nail in the coffin of bullish hope, as a slowing economy and aggressive Fed rate hikes had occupied traders. Even the occasional “face-ripping” short-squeezes could not deny the fact that we are stuck in bear market territory, and that the fine art of catching a falling knife, AKA bottom fishing, may not be the wisest path of dealing with the current market environment.

The end-result is, as ZeroHedge called it, that rate-hike expectations have stalled (i.e. the market no longer believes the Fed will be hiking as aggressively as it did) as recession fears are brought forward, and more notably subsequent rate-cut expectations have surged (now pricing in more than 3 rate-cuts).

Bond prices rallied, as yields dropped with the 10-year sliding almost 8 bps to close at 3.10%, a substantial decline from yesterday’s high of 3.25%. The major indexes ended up hugging their unchanged lines, but SmallCaps were clobbered and lost around 1%.

The US Dollar continued its bullish rampage, Crude Oil tanked on the day, as did Natural Gas, while Gold pumped and dumped and closed unchanged.  

Treading water and going nowhere best describes this session driven by nothing but uncertainty.

[Chart courtesy of MarketWatch.com]

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?