Market Update 07/18 - 07/22
Bear Market Rally, Netflix Bad but Less Bad, Oops SNAP, FOMC ahead
Overview:
Market Overview
What Happend in Macro this Week?
Week Ahead
Lets dig into the data 📊!
Market Overview
Indices, Sectors & Style Factors
Equities were generally up on the week with the SPX continuing upon last week’s strength. Defensives however, were the laggards of the week and were down. Start of a bull market or merely a bear market rally?
Fixed Income & Foreign Currencies
Yields were down on the week, finally signaling peak inflation/recession..? The 10/2’s remain inverted, indifferent to the rally in equities. With FOMC and inflation next week, the rates market’s reaction would probably be telling..
The US dollar wrecking ball showed some relent this week as it was generally down across the currency board. With the extreme inverse correlation between the dollar/stocks & commodities recent, maybe this week’s rally was just a function of dollar weakness?
Commodities
Commodities continue about their disinflationary story with some obvious outliers. Crypto, Uranium & Natural gas were the obvious outperformers amidst this move up.
European Natural gas remains THE story in commodity markets as Putin continues to hold Europe to a ransom by restarting the Nordstream pipeline but with certain conditions..
Overall Market Indicators
From a regime perspective, we continue to be in a inflationary regime which contrasts with what the price action is signaling. Transitory or sign of things to come? Reckon we should get a resolution sometime in the next 2 weeks..
On the correlation front, TLT/SPY correlation is finally showing some signs of caution with correlations now positive on a 5D but still negative on a 10D basis. With FOMC next week and various inflation indicators, it would be prudent to be on the look out!
From a dispersion perspective, we continue to see a deflation/inflation divergence exhibited last week. A reversal of this likely confirms that this bull/bear market rally may be over..
What Happened in Macro this Week?
Housing indicators and indices declined, probably signs of the economy finally feeling the heat of rising rates and a looming recession? PMI showed signs of slowing but remain fairly strong. Moving away from the US, the ECB finally came through with its above consensus hike (First in 11yrs!) of 50bps!
On the earnings front, the market came through relatively unscathed (except SNAP..) despite the negative sentiments with respect to the compression of earnings. The noteworthy ones are summarised below:
Netflix came out less bad than expected as it lost nearly 1 million subs which was below the guided loss of 2 million
Tesla reported a positive FCF (Are we surprised?) with the caveat that the bulk of this originated from it selling 75% of its bitcoin holdings. (💎🙌 …Not)
Snap missed on sales and EPS while at the same time are looking to reduce the rate of hiring. Result? Its stock pummeled.
Being an economic light week, thought I share some charts this week to help contextualize whether we are in a bear market rally or a start of a new bull market
TL;DR - Bear markets are longer than you think and rallies are often violent & vicious.
Week Ahead
Economic Calendar
Earnings Calendar
Looking to be a earning and economic heavy week with the FOMC on Wednesday. Absent of option flows and correlations signaling ⚠️, bucker up 🦺 I suppose?
Till next time, stay safe and be liquid 💦!