Decision Time
We titled last week’s update “Stall Speed” after a strong 2-month rally from the June 16th lows. Sure enough, equity market momentum fizzled last week into option expiration. While the S&P 500 added 0.1% Friday, it was a very mixed bag. Declines in technology and materials offset gains elsewhere. The economic data was mixed. Jobless claims were lower and industrial production higher, offset by bad home sales, building activity and flat retail sales. The S&P 500 is up 16% from its mid-June lows. This leads us to a summary – “What’s hot and what’s not”.
Hot: Technology and consumer discretionary have roared back. Gains have been in the 25%-to-40% range since the lows. These were the worst hit during the valuation reset. While these sectors have seen momentum turn, they are still down double-digits on the year.
Warm: Industrials are up by double-digits and are close to flat on the year. This is a big outperformance by a cyclical sector given recession concerns.
Tepid: Outside utilities, defensives have been a mixed bag. Consumer staples performing in-line while health care has lagged.
Cold: Financials have stabilized after selling off earlier in the year. However, an inverted yield curve, declining housing markets and economic slowdown hasn’t helped performance. On a year-to-date basis, most financial groups are still down notably in 2022.
Frigid: Energy and commodities have given back much of its earlier performance strength as oil prices fell back below $90. Broader commodity prices have come down big ex natural gas. Sectors topping the inflation trade have been hardest hit with the ‘peak inflation” trade of recent months.
Chart wise: While the S&P500 touched just underneath its 200-day moving average and “failed” last week. Little should be made of this chart action. This is quite normal in both extended bear markets and early bull market recoveries. Chartists should know much more by month end close in one week and September’s first half action.
The bear case for stocks is the following: The Fed is a long way from 2% its target inflation. This process will be slow even if we’re past the peak inflation. We will only get there with more tightening and more meaningful economic slowdown. The 2s10s yield curve remains well inverted 31 Bps. Chart resistance is overhead with the 200-day moving average around 4320 on the S&P 500.
The bull case for stocks is the following: See our podcasts since mid-June and July 1st’s, “Opportunity Knocks Early”. Periods past inflation peaks have been some of the best on record for returns. There is still a lot of bearish sentiment and positioning to unwind with current readings from Investors’ Intelligence, AAII and Conference Board showing attitudes usually consistent with market lows. A slower Fed could be fuel for stocks in late 2022.
Stock Talk Podcast: 2nd Half Outlook Part 2-Where do we go from here?
https://www.youtube.com/watch?v=rVNWhyd02OA
News or Noise: Does the CPI (Consumer Price Index) Report Affect the Stock Market?
https://www.youtube.com/watch?v=uY9YdPbUFGc&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=35
This content contains general information and express the views of Oak Harvest Investment Services. All data, articles, and information cited are believed to be reliable at the time of creation; however, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate or timely.
Oak Harvest provides links to content produced by other websites that OHFG does not control, and Oak Harvest does not necessarily approve or endorse such content and does not guarantee its accuracy. Nothing in this content constitutes personalized investment advice. Any charts, indicators, or graphs included or referenced in this content have limitations, and no such material is able, in and of itself, to provide a buy or sell recommendation for any security. Strategies and ideas discussed may not be right for you, and views and opinions expressed may change without notice. Strategies and ideas discussed will not apply to all client accounts or portfolios.
Nothing in this content constitutes a recommendation, or an offer or solicitation to buy or sell securities. Oak Harvest makes no assurance as to the accuracy of any forecast or projection made. Not all past forecasts or projections have been accurate. No current or future forecasts and projections are guaranteed to be accurate. And future forecasts may not be as accurate as any forecasts discussed. Indexes like the S&P 500 are not available for direct investment and your results will differ. Past performance is not indicative of future results. Investing involves the risk of loss.
