Stocks were on the move Thursday with another morning sell off recovering by the close. The Dow lost 143-points while the S&P 500 and Nasdaq were mixed but near flat after trading in a wide range. Small caps and the I-fund were the laggards. The June PPI report told us that wholesale prices are about as hot as the consumer prices as we saw an 11.3% year over year rise in producer prices, topping May's YOY 10.9% increase. This pushed stocks sharply lower at the open, but some slightly dovish comments from one of the Fed governors seemed to ease concerns.
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We also saw some very disappointing earnings from JP Morgan Chase and that sent bank stocks tumbling, as well as the rest of the market, but after the PPI scared investors, Fed Governor Christopher Waller said he expects to raise the central bank’s benchmark interest rate 75 basis points (0.75%) this month but that he’s open to a larger move depending on incoming data.
“I support another 75-basis point increase” at the next FOMC meeting, Waller said in remarks at an event in Victor, Idaho.
“However, my base case for July depends on incoming data.”
“We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”
Those comments seemed to be the reason for the positive reversal off the lows on Thursday, and that 74% probability of a 1.0% (100 basis points) rate hike at the July FOMC meeting that we talked about yesterday, got knocked down to just a 39% chance, with a 61% chance of a 0.75% (75 basis points) hike.
We are not stock pickers but I mention this next subject as a rhetorical question about whether we should expect some kind of bounce back from some of the heavily beaten down stocks in this bear market, or if we need to depend of the old stalwarts to keep the indices stable.
We have seen many big companies that had led the bull market up for years, get ripped apart in this bear market. Just to name a few, PayPal, Netflix, Facebook (Meta) are all below the prices they were BEFORE the Covid crash, and in some cases below the Covid lows. The question is, are they now a bargain or are they toast? New bull markets tend to have new leaders.
On the other hand, the more recession proof type of companies like a McDonald's, Merck, or Coca Cola, are not far off their highs. How long this lasts, i don't know, but as I said, we should see new leadership once this bear market is over.
Now that we have access to thousands of mutual funds in our TSP, we could be more selective with the sectors that we invest in. Unfortunately if you do any market timing and make several transfers a year, the fees will likely hurt you too much to make it feasible.
The action looks interesting as we continue to see some afternoon buying after early sell offs, but this is an options expiration week and it can bring unusual activity, sort of like the action before and after a holiday might. Historically the post options week (next week) is more bearish than the pre-options week (this week), and we can see that in the July seasonality chart.
This is also the start of earnings season and often, in bull markets anyway, you can get a buy the rumor, sell the news reaction to earnings.
The bear flags on all the charts suggest lower prices, but the extremes in many indicators suggest a relief rally wouldn't be a surprise either. Seasonality, earnings, and the setup for the July 27 FOMC meeting and rate hike make it very tough to get very comfortable with any position.
The S&P 500 (C-fund) continues to close well and seems to be trying to stabilize, but the action is bearish considering it is below the 20-day EMA and below that bear flag. We could be due for another bounce but there is a lot of resistance overhead so I don't know if we can expect much, unless it can finally get over that descending channel near 3900 somehow. Could it possibly do that without a Fed pivot at the July 27 meeting? Probably not, but we know how the market likes to fool the most people that it can.
The DWCPF (S-fund) looks similar to the S&P and after a day of trying to crawl back into the bear flag, yesterday's selloff pushed it back below it. The downside target based on this flag would be well below the lows on the chart, but as we said, there's some reason to believe we could get a bounce first. Tough call.
EFA (I-fund) was down sharply again after another big rally in the dollar yesterday. That is a falling wedge pattern and I hate to say it in a bear market, but falling wedges tend to break to the upside.
BND (Bonds / F-fund) was down sharply yesterday but we are seeing a possible bull flag forming, and it may be trying to gain strength to get it back above that 50-day EMA. I didn't draw it in but there is also a possible inverted head and shoulders pattern. That is often bullish, but more so in bull market, and bonds are not in a bull market so I won't get too excited about that yet.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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We also saw some very disappointing earnings from JP Morgan Chase and that sent bank stocks tumbling, as well as the rest of the market, but after the PPI scared investors, Fed Governor Christopher Waller said he expects to raise the central bank’s benchmark interest rate 75 basis points (0.75%) this month but that he’s open to a larger move depending on incoming data.
“I support another 75-basis point increase” at the next FOMC meeting, Waller said in remarks at an event in Victor, Idaho.
“However, my base case for July depends on incoming data.”
“We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”
Those comments seemed to be the reason for the positive reversal off the lows on Thursday, and that 74% probability of a 1.0% (100 basis points) rate hike at the July FOMC meeting that we talked about yesterday, got knocked down to just a 39% chance, with a 61% chance of a 0.75% (75 basis points) hike.
We are not stock pickers but I mention this next subject as a rhetorical question about whether we should expect some kind of bounce back from some of the heavily beaten down stocks in this bear market, or if we need to depend of the old stalwarts to keep the indices stable.
We have seen many big companies that had led the bull market up for years, get ripped apart in this bear market. Just to name a few, PayPal, Netflix, Facebook (Meta) are all below the prices they were BEFORE the Covid crash, and in some cases below the Covid lows. The question is, are they now a bargain or are they toast? New bull markets tend to have new leaders.
On the other hand, the more recession proof type of companies like a McDonald's, Merck, or Coca Cola, are not far off their highs. How long this lasts, i don't know, but as I said, we should see new leadership once this bear market is over.
Now that we have access to thousands of mutual funds in our TSP, we could be more selective with the sectors that we invest in. Unfortunately if you do any market timing and make several transfers a year, the fees will likely hurt you too much to make it feasible.
The action looks interesting as we continue to see some afternoon buying after early sell offs, but this is an options expiration week and it can bring unusual activity, sort of like the action before and after a holiday might. Historically the post options week (next week) is more bearish than the pre-options week (this week), and we can see that in the July seasonality chart.
This is also the start of earnings season and often, in bull markets anyway, you can get a buy the rumor, sell the news reaction to earnings.
The bear flags on all the charts suggest lower prices, but the extremes in many indicators suggest a relief rally wouldn't be a surprise either. Seasonality, earnings, and the setup for the July 27 FOMC meeting and rate hike make it very tough to get very comfortable with any position.
The S&P 500 (C-fund) continues to close well and seems to be trying to stabilize, but the action is bearish considering it is below the 20-day EMA and below that bear flag. We could be due for another bounce but there is a lot of resistance overhead so I don't know if we can expect much, unless it can finally get over that descending channel near 3900 somehow. Could it possibly do that without a Fed pivot at the July 27 meeting? Probably not, but we know how the market likes to fool the most people that it can.
The DWCPF (S-fund) looks similar to the S&P and after a day of trying to crawl back into the bear flag, yesterday's selloff pushed it back below it. The downside target based on this flag would be well below the lows on the chart, but as we said, there's some reason to believe we could get a bounce first. Tough call.
EFA (I-fund) was down sharply again after another big rally in the dollar yesterday. That is a falling wedge pattern and I hate to say it in a bear market, but falling wedges tend to break to the upside.
BND (Bonds / F-fund) was down sharply yesterday but we are seeing a possible bull flag forming, and it may be trying to gain strength to get it back above that 50-day EMA. I didn't draw it in but there is also a possible inverted head and shoulders pattern. That is often bullish, but more so in bull market, and bonds are not in a bull market so I won't get too excited about that yet.
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
