Peak CPI/Inflation? 9.1%

Equity markets bounced Thursday and Friday but still ended marginally down on the week. The S&P 500 fell 0.9%, with energy and telecom most down. The S&P index is down 18.9% on the year, with all sectors but energy in the red. The index is positive for July with a month-to-date gain of 2.1%.

All but one sector of the S&P 500 fell last week. Communication services had the largest weekly percentage drop, falling 3.3%. Energy declined by a 3.1%. Among the others in the red, the materials, industrials and consumer discretionary sectors all logged declines of more than 1% each. Staples rose 0.1%.

The declines in communication services included shares of Facebook which fell 3.6%. Needham downgraded its investment rating on the stock to underperform from hold.

The year-to-date leadership energy sector’s drop came as oil fell below $100. Among the decliners, shares of EOG Resources (EOG) shed 7.8% and APA Corp. (APA) lost 8.2%.

This week is a big one for earnings as we get a lot of companies reporting, including but not limited to, BAC, AXP, NFLX, TSLA, LVS, JNJ, ISRG, FCX, SLB, LMT, UNP, and VZ.

The U.S. inflation report for June was the key piece of data last week. Consumer prices rose 1.3% in the month, above expectations, lifting the year-over-year rate to 9.1%. This was the highest since 1981. Gains were broad based, although gas and food (both much lower in July) did a lot of lifting in June. Commodity, resource, and shipping prices have fallen materially the last 2 months giving signs of cresting inflation. We cover many of these topics in last Friday’s “Stock Talk Podcast”. See the link below. This softening of inflation expectations is one reason why we expect the FOMC will raise by 75bp hike at the July FOMC meeting, not 100bp.

Many strategists are referring to the 1st half of 2022 behaving remarkedly like the 1st half of 1970 economically and politically with high inflation and a very weak stock market. The data doesn’t lie. They do look similar year to date. Check out this Wednesday’s news or Noise segment for more information but here is the data”

In the first half of 1970 (also a Midterm election year), with inflation also running hot, the S&P 500 fell -21%. First half 2022 was also down almost exactly -21% with high inflation.  In the second half of 1970, the market reversed those losses to gain 26.5% off those lows into yearend closing the year almost spot on flat for the wild ride of 1970.

In total, the market rose +44% from its halftime closing low in 1970 through its first half, 2nd quarter, 1971 top.  This top was also up 14.5% higher than where the markets started 1970.  If you hear strategists bringing up the comparison to the 1970’s?  A purely data driven response would be,” Let’s hope so, that is new all-time highs on the S&P500 in early 2023 and substantial gains by mid-2023!”  The history of the markets, and the final punchline is often left off these historically dire comparisons made on TV.

Weekly Stock Podcast: Nightmares on Wall Street? – Federal Reserve Balance Sheet and Commercial Banking. What keeps me up at night?

News or Noise: Recession? Inflation? – That 1970’s Show All over again?


Oak Harvest YouTube Channel

Stock Talk Podcast (Weekly Market News and Opinion from Oak Harvest):

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


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