First Half Halt
U.S. markets were closed Monday for Independence Day. Stocks ended lower last week, led down by the Nasdaq (-4.1%) followed by the S&P 500 (-2.2%) and the Dow (-1.3%). Interest rates dropped on Friday, with the 10-year dropping to 2.88%. Most commodities have dropped the last 2 weeks (steel, copper, grains, metals, natural gas) with WTI oil now around $108. The dollar is marginally weaker though still near the highest level in almost two decades.
Look for the FOMC Minutes on Wednesday. Following the Fed’s rare move to hike by 75 bps at the June 14-15 meeting (first time since November 1994), the minutes should be revealing. It was just over a month earlier, following the May meeting, when Fed Chair Powell issued forward guidance, signaling back-to-back 50-bp increases but a “75-bp hike was not actively being considered”. Two weeks later, Fed Chair Powell had a change of heart after CPI data showed a faster monthly move in core inflation.
The economic data continues to weaken with the City Economic Surprise index now sitting at a contrarily bullish reading of -75. June’s ISM services PMI is expected to drop for the third straight month to the lowest level since May 2020. The Fed will welcome weaker job growth and economic data, but wages are still running high in front of the Fed’s end of July meeting. The lone commodity, which has historical been a forward leading indicator, Lumber, is beginning to turn up anticipating easier 2h22 and 1h23 economic comparable and a slower Fed interest rate path.
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.
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: Opportunity knocks early
https://www.youtube.com/watch?v=8T_FyBjyQG8&list=PLxj0FBH5Bt8twiZx9RvxpW9AydohZ5W3-&index=37
News or Noise: Get Rich Trading options
https://www.youtube.com/watch?v=Y7L058NxlFI&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=28
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