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Monday, June 27, 2022
I am rather amazed by the powerful effects of taking my first day off in about four years last week.
What's left is a (mostly) clear head with physical batteries that are more charged up than a used Tesla. Maybe I will try doing this more often.
And being semi-off (see below...) allowed me to look at the markets with fresh perspective after a series of downbeat Morning Brief newsletters from yours truly in recent weeks.
I liked how stocks shrugged off hawkish comments from Fed chief Jerome Powell. I liked how stocks turned a blind eye to a worrying outlook on the economy by Federal Reserve Bank of Philadelphia President Patrick Harker in an interview with our Brian Cheung.
Markets headliner Mohamed El-Erian told Yahoo Finance Live on Friday that "unfortunately, [it's] uncomfortably possible that the Fed is going to slam on the brakes and push us into recession."
The S&P 500 ended Friday's session up 3%, while the Dow Jones Industrial Average tacked on 2.7%.
All of this action suggests markets may have hit some form of short-term bottom.
— Brian Sozzi (@BrianSozzi) June 23, 2022
Notice I said "suggests," "may," and "short-term." I do believe we are mired in a land of bear market rallies until (1) the Fed signals it's inclined to start cutting interest rates; and (2) inflation increases (CPI, PPI, gas, etc.) begin to decelerate for more than one month.
And it appears others in the world of finance are beginning to warm to the idea that a short-term bottom in stocks maybe be forming.
"The past week+ has seen 'capitulation' across currencies, fixed income and especially crypto, culminating in last Saturday’s (June 18) bitcoin plunge to $17,600," said Evercore ISI strategist Julian Emanuel in a new note.
"And the news from hawkish central bankers and forward looking indicators portending recession was even more downbeat, as investors brace for an earnings season we all 'know' will bring downward EPS revisions. Yet last week ended without a crisis, stocks rallied, and volume was strong."
Emanuel adds: "While the bottom of this bear market won’t likely happen until gasoline prices decline meaningfully, last Saturday night’s [crypto] massacre and reversals in other assets is a reminder that bear markets don’t move in a straight line forever, setting the table for a bottom/tradable rally into the next FOMC meeting on July 27."
While Emanuel strikes a bullish tone from a more fundamental perspective, the technical setup for the markets is also looking compelling to strategists.
"We see a continuation of the rally into quarter-end that should fill the gap at 4,017," says BTIG technical strategist Jonathan Krinsky. "There is a confluence of resistance in the 4,000-4,065 level including the downtrend channel and the declining 50 daily moving average." In plain English: the charts say the S&P 500 should go up another 100 points or so — then we'll see what this rally is made of.
This short-term bottom theory will be put to the fundamental test this week, with earnings from Nike (NKE) and Micron (MU). If Nike's U.S. growth rate slows sequentially and guidance is anything resembling the tone we have heard lately from Target and other retailers, stocks may face fresh recession fears. If fears of rising inventories and slowing orders at Micron materialize this quarter, this report won't help sentiment either.
Meanwhile, economists are telling me that PMI reports are now some of the most market-moving in the game. We get the latest batch of those reports on Friday.
And so amid this volatility and deluge of data, maybe consider putting in for a day off sometime soon. It worked for me. At least for now.
What to Watch Today
8:30 a.m. ET: Durable Goods Orders, May preliminary (0.2% expected, 0.5% during prior month)
8:30 a.m. ET: Durables Excluding Transportation, May preliminary (0.3% expected, 0.4% during prior month)
8:30 a.m. ET: Non-defense Capital Goods Orders Excluding Aircraft, May preliminary (0.1% expected, 0.4% during prior month)
8:30 a.m. ET: Non-defense Capital Goods Shipments Excluding Aircraft, May preliminary (0.2% expected, 0.8% during prior month)
10:00 a.m. ET: Pending Home Sales, month-over-month, May (-3.9% expected, -3.9% during prior month)
10:00 a.m. ET: Pending Home Sales NSA, year-over-year, April (-11.5% during prior month)
10:00 a.m. ET: Dallas Fed Manufacturing Activity, June (-6.5 expected, -7.3 during prior month)
No notable reports scheduled for release.
Nike (NKE) is expected to report adjusted earnings of $0.83 per share on revenue of $12.14 billion
Jefferies Financial Group (JEF) is expected to report adjusted earnings of $0.51 per share on revenue of $1.26 billion