Earnings Parade Begins

U.S. equities rose last week.  The S&P 500 rose 2.5% last week to take July’s gain to almost 5%.  The Nasdaq moved 3.3% higher. The Russell 2000 small caps gained the most ground with a 3.6% rally last week. Earnings season has begun and becomes fevered this week.  The Federal Reserve also meets mid-week and is expected to raise rates by another 75bps at their meeting, taking the target range to 2.25%-to-2.50%. This is a 225-bp runup in just four months.  Powell’s press conference could provide clues to the size of the next rate hike in September, given his recent habit of frontrunning FOMC decisions.

Preliminary Q2 GDP will be reported on Thursday. Q1’s contracted by -1.6% on a real basis due to import and inventory adjustments. A second negative quarterly print is a possible, which would meet the technical definition of recession.

Forward inflation expectations have been declining for a few months already larger due to lower gasoline prices and other commodity prices and continued weak economic data. NAHB housing market index plunged 12 points to 55 in July after the 2-point drop to 67 in June. This is the largest point tumble since the 42 point drop in April 2020. This is the seventh straight monthly decline, sliding from a recent high of 84 in December and an all-time peak of 90 in November 2020.  Given CPI’s 1/3rd weighting in housing, these declines should put downward pressure on rents and home pricing which would be a blessing for forward inflation data.

Speculator positioning in S&P 500 futures contracts continues to collapse with the latest reading from the Commitments of Traders report showing a net 9.3% of open interest short. Positioning is at the most net short levels since the first week of October 2015. After that reading in 2015, the S&P added 7.5% in the next two months.  We discuss many sentiment measures on this Fridays podcast following up on a Michael Hartnett, Merrill Lynch strategist research piece titled, “I’m so Bearish, I’m Bullish”. A sneak peak, the latest Merrill Lynch Fund Managers Survey showed widespread pessimism on the part of respondents. According to the report, exposure levels to equities are at their lowest levels since the Financial Crisis while cash levels are higher now than at any other time since 2001

 

Weekly Stock Podcast: June CPI Inflation – For better or worse?

https://www.youtube.com/watch?v=RE_M_45Q8C4

News or Noise: Single Stock Leveraged ETF’s

https://www.youtube.com/watch?v=AwBTOFEPprk&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=31

The Investor Mindset Podcast (Introduction to Critical Concepts for Investors):

https://oakharvestfg.com/investor-mindset/

 

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