Morning Market Update July 29

Providing Market Insights and Returns

In every major economic downturn in U.S. history, the villains have been the heroes during the preceding boom. Peter Drucke

DOW FUT up 0.12%, S&P up 0.52%, NAS up 0.75%, Oil +1.7% just below $100/bbl and the US 10yr is up 2bps @2.71%. Stocks have moved down slightly since the Employment cost index and PCE came in hotter than expected, indicating that the Fed’s dovishness may not stay. Earnings also moving the market today. AMZN (+12%) and APPL (+2.3%) gave investors’ confidence. ROKU (-23%) and INTC (-11%) showed that ad spending and supply chains may be a problem for companies.

The market ripped yesterday; all US indices rose more than 1%. The DOW & the SPX both closed right above their 500-dema, QQQ still has a bit to go until it breaks that level. The S&P closed above 4000, a significant level of resistance with the next resistance level around 4175. The new high-low data is still diverging from this rally, we continue to see more lows than highs in both the NYSE & NASDAQ. About 75% of stocks are above their 50dma, need this number to be higher before the all-clear signal. Regardless the market is headed for the best month since 2020. AAPL & AMZN both had fine numbers last night but they both rallied as investors were able to find a silver lining in each. People may think that with these reports remaining strong then the consumer may be doing better than expected. However, P&G reduced their guidance sighting the opposite, the consumer is struggling. This is showing how bifurcated the economy is right now. High-end companies such as LVMH and Hermes both beat expectations, indicating that the upper class is doing better than the middle/lower class. XOM posted all-time record earnings, likely to cause more conflict with the Biden administration after they said XOM was making more money than god. Taiwan-China-US tensions will be critical to watch over the next few weeks. Xi told Biden that those who play with fire get burned. Pelosi (and the US) have made it seem like they are committed to visiting Taiwan in August and Xi has committed to some form of retaliation if this happens. Both sides are stuck between a rock and a hard place, to save face they must both go forward with their plans in some way. Let’s keep an eye on it.

Are we in a recession? That is the big question that everyone is asking. After the GDP print yesterday indicated that we had two consecutive quarters of negative growth, investors rushed into the market and bought just about everything they could. Likely thinking that if we are in a recession the Fed may stop raising rates and we will resume the growth that we have had for the last 10+ years. We will see if this is considered a recession but based on Powell’s remarks, they do not believe that we are in a recession. Many investors are taught that a “recession” occurs after two consecutive quarters of negative GDP growth. However, the National Bureau of Economic Research (NBER) says there is no defined definition of a recession rather is it up to them to determine if we are in a “significant decline in economic activity that is spread across the economy and that lasts more than a few months”. Interesting because they declared the COVID pandemic a recession even though it was only about a month. Unless things deteriorate quickly, we doubt that any official recession will be called before the midterm elections.

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