Stock Market Today: June 12th - 16th, 2023

Welcome StonkForums to the trading week of June 12th!

This past week saw the following moves in the S&P:


S&P Sectors End of Week:


Major Indices End of Week:


Major Futures Markets End of Week:


Economic Calendar for the Week Ahead:


What to Watch in the Week Ahead:

(N/A.)

 

Growth/Value Trend Reverses On Week; VIX Dumps, Bonds & Gold Jump As Jobs Slump
FRIDAY, JUN 09, 2023 - 04:01 PM

A week of reversals? The S&P 500 reversed into a new bull market (off the October lows) as jobless claims reversed to a 19-month high...



Source: Bloomberg

After a two-week rebound in macro-surprise data, US Macro data disappointed this week - most notably jobless claims...



Source: Bloomberg

But, the market's expectations for Fed rate changes shifted modestly hawkishly, holding on to post-payrolls shifts, with June expected be a 'pause' but July pricing in almost a full rate-hike. At the same time, rate-cut expectations by year-end have shrunk significantly as soft-landing (not crash landing) hopes reshape the distribution of outcomes...



Source: Bloomberg

On the week, Small Caps outperformed while Nasdaq lagged (another reversal) and The Dow and S&P struggled for gains...



The S&P 500 algos battled for a 4300 close...but lost...



The trend of Nasdaq outperforming Russell 2000 ended abruptly this week - after tagging its all time high from Feb 2000 peak of the dotcom bubble - but today saw some bouncing...



Source: Bloomberg

Following 7 straight weeks of growth outperforming value, this week saw a notable reversal with value outperforming growth by the most since the first week of January...



Source: Bloomberg

One thing that didn't change was the collapse in VIX, which hit a 13 handle - its lowest since Feb 2020 - this week. However, VVIX started to decouple from VIX's demise hinting at trouble ahead...



Source: Bloomberg

Regional bank shares rose for the 4th straight week, but stalled at resistance...



As far as the AI bubble, NVDA ended the week where exactly where it opened the morning after its blockbuster earnings... not exactly an exuberant follow through...



TSLA rose for the 11th straight day to its highest since Oct 2022...



...equaling its record winning streak...



Treasuries were very mixed this week with some big jumpy swings intraday. By the close, the long-bond outperformed (-1bps on the week) while the short-end was up around 9-10bps...



Source: Bloomberg

The yield curve (2s30s) inverted deeper this week as



Source: Bloomberg

The dollar fell for the second week in a row



Source: Bloomberg

Crypto was mostly lower this week as the SEC sued Binance and Coinbase prompting more FUD. Solana was hardest hit of the larger coins with BTC and ETH down around 3%...



Source: Bloomberg

Bitcoin clung to $26,500 after the Binance puke and bounce...



Source: Bloomberg

Gold rallied for the second week in a row, but had a very volatile dump and pump week...



Oil prices fell for the second straight week after the Saudi production cut news failed to impress (with WTI within a tick of a $68 handle at the week's lows having touched $75 at the highs)...



Finally, the "trilemma" continues to confuse...



Source: Bloomberg

The dollar, tech stocks and real rates are not supposed to act like this into a recession.

The dollar rallies (fact) on higher real rates (check) OR rising risk aversion (not present), tech rallies (fact) on lower real rates (not present) OR higher risk appetite due to US exceptionalism (check).

Goldman believes that the dollar is right and equities aren't.

Mega-Cap tech continues to ignore the tightening of financial conditions...



Source: Bloomberg

How long before The Fed worries they have blown another bubble with their pandering?

And don't forget, there is an alternative now...



Source: Bloomberg

Six-month T-Bill yields are 50bps higher than the S&P's current earnings yield - the widest spread since Jan 2021.

 

June’s Quad Witching Options Expiration Riddled With Volatility

The second Triple Witching Week (Quadruple Witching if you prefer) of the year brings on some volatile trading with losses frequently exceeding gains. NASDAQ has the weakest record on the first trading day of the week. Triple-Witching Friday is usually better, S&P 500 has been up 12 of the last 20 years, but down 6 of the last 8.

Full-week performance is choppy as well, littered with greater than 1% moves in both directions. The week after June’s Triple-Witching Day is horrendous. This week has experienced DJIA losses in 27 of the last 33 years with an average performance of –0.81%. S&P 500 and NASDAQ have fared better during the week after over the same 33-year span. S&P 500’s averaged –0.46%. NASDAQ has averaged +0.03%. 2022’s sizable gains during the week after improve historical average performance notably.


A New Bull Market: What’s Driving It?
Posted on June 9, 2023

The S&P 500 finally closed 20% above its October 12th (2022) closing low. This puts the index in “official” bull market territory.

Of course, if you had been reading or listening to Ryan on our Facts vs Feelings podcast, you’d have heard him say that October 12th was the low. He actually wrote a piece titled “Why Stocks Likely Just Bottomed” on October 19th!

The S&P 500 Index fell 25% from its peak on January 3rd, 2022 through October 12th. The subsequent 20% gain still puts it 10% below the prior peak. This does get to “math of volatility”. The index would need to gain 33% from its low to regain that level. This is a reason why it’s always better to lose less, is because you need to gain less to get back to even.



So, what’s next? The good news is that future returns are strong. In his latest piece, Ryan wrote that out of 13 times when stocks rose 20% off a 52-week low, 10 of those times the lows were not violated. The average return 12 months later was close to 18%. The only time we didn’t see a gain was in the 2001-2002 bear market.



Digging into the return drivers
It’s interesting to look at what’s been driving returns over the past year. This can help us think about what may lie ahead. The question was prompted by our friend, Sam Ro’s latest piece on the bull market breakout. He wrote that earnings haven’t been as bad as expected. More importantly, prospects have actually been improving.

The chart below shows earnings expectations for the S&P 500 over the next 12 months. You can see how it rose in the first half of 2022, before collapsing over the second half of the year. The collapse continued into January of this year. But since then, earnings expectations have steadily risen. In fact, they’ve accelerated higher since mid-April, after the last earnings season started. Currently, they’re higher than where we started the year.



Backing up a bit: we can break apart the price return of a stock (or index) into two components:

• Earnings growth
• Valuation multiple growth

I decomposed annual S&P 500 returns from 2020 – 2023 (through June 8th) into these two components. The chart below shows how these added up to the total return for each year. It also includes:

• The bear market pullback from January 3rd, 2022, through October 12th, 2022
• And the 20% rally from the low through June 8th, 2023

You can see how multiple changes have dominated the swing in returns.

The notable exception is 2021, when the S&P 500 return was propelled by earnings growth. In contrast, the 2022 pullback was entirely attributed to multiple contraction. Earnings made a positive contribution in 2022.

Now, multiple contraction is not surprising given the rapid change in rates, as the Federal Reserve (Fed) looked to get on top of inflation. However, they are close to the end of rate hikes, and so that’s no longer a big drag on multiples.

Consequently, multiple growth has pulled the index higher this year. You can see how multiple contraction basically drove the pullback in the Index during the bear market, through the low. But since then, multiples have expanded, pretty much driving the 20% gain.

Here’s a more dynamic picture of the S&P 500’s cumulative price return action from January 3rd, 2022, through June 8th, 2023. The chart also shows the contribution from earnings and multiple growth. As you can see, earnings have been fairly steady, rising 4% over the entire period. However, the swing in multiples is what drove the price return volatility.

Multiples contracted by 14%, and when combined with 4% earnings growth, you experienced the index return of -10%.

What next?
As I pointed out above, the problem for stocks last year was multiple contraction, which was driven by a rapid surge in interest rates.

The good news is that we’re probably close to end of rate hikes. The Fed may go ahead with just one more rate hike (in July), which is not much within the context of the 5%-point increase in rates that they implemented over the past year.

Our view is that rates are likely to remain where they are for a while. But rates are unlikely to rise from 5% to 10%, or even 7%, unless we get another major inflation shock.

This means a major obstacle that hindered stocks last year is dissipating. The removal of this headwind is yet another positive factor for stocks as we look ahead into the second half of the year.

Why Low Volatility Isn’t Bearish
Posted on June 8, 2023

“There is no such thing as average when it comes to the stock market or investing.” -Ryan Detrick

You might have heard by now, but the CBOE Volatility Index (better known as the VIX) made a new 52-week low earlier this week and closed beneath 14 for the first time in more than three years. This has many in the financial media clamoring that ‘the VIX is low and this is bearish’.

They have been telling us (incorrectly) that only five stocks have been going up and this was bearish, that a recession was right around the corner, that the yield curve being inverted was bearish, that M2 money supply YoY tanking was bearish, and now we have the VIX being low is bearish. We’ve disagreed with all of these worries and now we take issue with a low VIX as being bearish.

What exactly is the VIX you ask? I’d suggest reading this summary from Investopedia for a full explanation, but it is simply how much option players are willing to pay up for potential volatility over the coming 30 days. If they sense volatility, they will pay up for insurance. What you might know is that when the VIX is high (say above 30), that means the market tends to be more volatile and likely in a bearish phase. Versus a low VIX (say sub 15) historically has lead to some really nice bull markets and small amounts of volatility.

Back to your regularly scheduled blog now.

The last time the VIX went this long above 14 was for more than five years, ending in August 2012. You know what happened next that time? The S&P 500 added more than 18% the following 12 months. Yes, this is a sample size of one, but I think it shows that a VIX sub 14 by itself isn’t the end of the world.

One of the key concepts around volatility is trends can last for years. What I mean by this is for years the VIX can be high and for years it can be low. Since 1990, the average VIX was 19.7, but it rarely trades around that average. Take another look at the quote I’ve used many times above, as averages aren’t so average.
This chart is one I’ve used for years now and I think we could be on the cusp of another low volatility regime. The red areas are times the VIX was consistently above 20, while the yellow were beneath 20. What you also need to know is those red periods usually took place during bear markets and very volatile markets, while the yellow periods were hallmarked by low volatility and higher equity prices. Are we about to enter a new period of lower volatility? No one of course knows, but if this is about to happen (which is my vote), it is another reason to think that higher equity prices (our base case as we remain overweight equities in our Carson House Views) will be coming.



Lastly, I’ll leave you on this potentially bullish point. We like to use relative ratios to get a feel for how one asset is going versus to another. We always want to be in assets or sectors that are showing relative strength, while avoiding areas that are weak.

Well, stocks just broke out to new highs relative to bonds once again. After a period of consolidation during the bear market last year, now we have stocks firmly in the driver seat relative to bonds. This is another reason we remain overweight stocks currently and continue to expect stocks to do better than bonds going forward.



Our Leading Economic Index Says the Economy is Not in a Recession
Posted on June 7, 2023

We’ve been writing since the end of last year about how we believe the economy can avoid a recession in 2023, including in our 2023 outlook. This has run contrary to most other economists’ predictions. Interestingly, the tide has been shifting recently, as we’ve gotten a string of relatively stronger economic data. More so after the latest payrolls data, which surprised again.

One challenge with economic data is that we get so many of them, and a lot of times they can send conflicting signals. It can be hard to parse through all of it and come up with an updated view of the economy after every data release.

One approach is to combine these into a single indicator, i.e. a “leading economic index” (LEI). It’s “leading” because the idea is to give you an early warning signal about economic turning points.

Simply put, it tells you what the economy is doing today and what it is likely to do in the near future.

The most popular LEI points to recession
One of the most widely used LEI’s is released by the Conference Board, and it currently points to recession. As you can see in the chart below, the Conference Board’s LEI is highly correlated with GDP growth – the chart shows year-over-year change in both.

You can see how the index started to fall ahead of the 2001 and 2008 recession (shaded areas). The 2020 pandemic recession was an anomaly since it hit so suddenly. In any case, using an LEI means we didn’t have to wait for GDP data (which are released well after a quarter ends) to tell us whether the economy was close to, or in a recession.



As you probably noticed above, the LEI is down 8% year-over-year, signaling a recession over the next 12 months. It’s been pointing to a recession since last fall, with the index declining for 13 straight months through April.

Quoting the Conference Board:

“The Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”

Safe to say, we’re close to mid-2023 and there’s no sign of a recession yet.

What’s inside the LEI
The Conference Board’s LEI has 10 components of which,

• 3 are financial market indicators, including the S&P 500, and make up 22% of the index
• 4 measure business and manufacturing activity (44%)
• 1 measures housing activity (3%)
• 2 are related to the consumer, including the labor market (31%)

You can see how these indicators have pulled the index down by 4.4% over the past 6 months, and by -0.6% in April alone.



Here’s the thing. This popular LEI is premised on the fact that the manufacturing sector, and business activity/sentiment, is a leading indicator of the economy. This worked well in the past but is probably not indicative of what’s happening in the economy right now. For one thing, the manufacturing sector makes up just about 11% of GDP.

Consumption makes up 68% of the economy, and we believe it’s important to capture that.

In fact, consumption was strong in Q1 and even at the start of Q2, thanks to rising real incomes. Housing is also making a turnaround and should no longer be a drag on the economy going forward (as it has been over the past 8 quarters). The Federal Reserve (Fed) is also close to being done with rate hikes. Plus, as my colleague, Ryan Detrick pointed out, the stock market’s turned around and is close to entering a new bull market.

Obviously, there are a lot of data points that we look at and one way we parse through all of it is by constructing our own leading economic index.

An LEI that better reflects the US economy
We believe our proprietary LEI better captures the dynamics of the US economy. It was developed a decade ago and is a key input into our asset allocation decisions.

In contrast to the Conference Board’s measure, it includes 20+ components, including,

• Consumer-related indicators (make up 50% of the index)
• Housing activity (18%)
• Business and manufacturing activity (23%)
• Financial markets (9%)

Just as an example, the consumer-related data includes unemployment benefit claims, weekly hours worked, and vehicle sales. Housing includes indicators like building permits and new home sales.

The chart below shows how our LEI has moved through time – capturing whether the economy is growing below trend, on-trend (a value close to zero), or above trend. Like the Conference Board’s measure, it is able to capture major turning points in the business cycle. It declined ahead of the actual start of the 2011 and 2008 recessions.

As of April, our index is indicating that the economy is growing right along trend.



Last year, the index signaled that the economy was growing below trend, and that the risk of a recession was high.

Note that it didn’t point to an actual recession. Just that “risk” of one was higher than normal. In fact, our LEI held close to the lows we saw over the last decade, especially in 2011 and 2016 (after which the economy, and even the stock market, recovered).

The following chart captures a close-up view of the last 3 and half years, which includes the Covid pullback and subsequent recovery. The contribution from the 4 major categories is also shown. You can see how the consumer has remained strong over the past year – in fact, consumer indicators have been stronger this year than in late 2022.



The main risk of a recession last year was due to the Fed raising rates as fast as they did, which adversely impacted housing, financial markets, and business activity.

The good news is that these sectors are improving even as consumer strength continues. The improvement in housing is notable. Additionally, the drag from financial conditions is beginning to ease as we think that the Federal Reserve gets closer to the end of rate hikes, and markets rally.

Putting the Puzzle Together
Another novel part of our approach is that we have an LEI like the one for the US for more than 25 other countries. Each one is custom built to capture the dynamics of those economies. The individual country LEIs are also subsequently rolled up to a global index to give us a picture of the global economy, as shown below.



I want to emphasize that we do not rely solely on this as the one and only input into our asset allocation, portfolio and risk management decisions. While it is an important component that encapsulates a lot of significant information, it is just one piece of the puzzle. Our process also has other pillars such as policy (both monetary and fiscal), technical factors, and valuations.

We believe it’s important to put all these pieces together, kind of like putting together a puzzle, to understand what’s happening in the economy and markets, and position portfolios accordingly.

Putting together a puzzle is both a mechanistic and artistic process. The mechanistic aspect involves sorting the pieces, finding edges, and matching colors, etc. It requires a logical and methodical approach, and in our process the LEI is key to that.

However, there is an artistic element as well. As we assemble the pieces together, a larger picture gradually emerges. You can make creative decisions about how each piece fits within the overall picture. Within the context of portfolio management, that takes a diverse range of experience. Which is the core strength of our Investment Research Team.

Welcome to the New Bull Market
Posted on June 6, 2023

“If you torture numbers enough, they will tell you anything.” -Yogi Berra, Yankee great and Hall of Fame catcher

Don’t shoot the messenger, but historically, it is widely considered a new bull market once stocks are more than 20% off their bear market lows. This is similar to when stocks are down 20% they are in a bear market. Well, the S&P 500 is less than one percent away from this 20% threshold, so get ready to hear a lot about it when it eventually happens.

I’m not crazy about this concept, as we’ve been in the camp that the bear market ended in October for months now (we started to say it in late October, getting some really odd looks I might add), meaning a new bull market has been here for a while. Take another look at the great Yogi quote above, as someone can get whatever they want probably when talking about bear and bull markets.

None the less, what exactly does a 20% move higher off a bear market low really mean? The good news is future returns are quite strong.
We found 13 times that stocks soared at least 20% off a 52-week low and 10 times the lows were indeed in and not violated. The only times it didn’t work? Twice during the tech bubble implosion and once during the Financial Crisis. In other words, some of the truly worst times to be invested in stocks. But the other 10 times, once there was a 20% gain, the lows were in and in most cases, higher prices were soon coming. This chart does a nice job of showing this concept, with the red dots the times new lows were still yet to come after a 20% bounce.



Here’s a table with all the breakdowns. A year later stocks were down only once and that was during the 2001/2002 bear market, with the average gain a year after a 20% bounce at a very impressive 17.7%. It is worth noting that the one- and three-month returns aren’t anything special, probably because some type of consolidation would be expected after surges higher, but six months and a year later are quite strong.



As we’ve been saying this full year, we continue to expect stocks to do well this year and the upward move is firmly in place and studies like this do little to change our opinion.

 

Here are the percentage changes for the major indices for WTD, MTD, QTD & YTD in 2022-



S&P sectors for the past week-

 

Here are the current major indices pullback/correction levels from 52WK highs as of week ending 6.9.23-


Here is also the pullback/correction levels from current prices-


Here are the current major indices rally levels from 52WK lows as of week ending 6.9.23-

 

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Here are the upcoming IPO's for this week-

 

Stock Market Analysis Video for June 9th, 2023
Video from AlphaTrends Brian Shannon
(VIDEO NOT YET POSTED!)

ShadowTrader Video Weekly 6/11/23
Video from ShadowTrader Peter Reznicek
(VIDEO NOT YET POSTED!)

 

StonkForumers! Come join us on our stock market competitions for this upcoming trading week ahead!-

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StonkForums Weekly Stock Picking Contest & SPX Sentiment Poll (6/12-6/16) <-- click there to cast your weekly market direction vote and stock picks for this coming week ahead!

Daily SPX Sentiment Poll for Monday (6/12) <-- click there to cast your daily market direction vote for this coming Monday ahead!

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It would be pretty sweet to see some of you join us and participate on these!

I hope you all have a fantastic weekend ahead!

 

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Here are the most anticipated Earnings Releases for this upcoming trading week ahead.

***Check mark next to the stock symbols denotes confirmed earnings release date & time***

Monday 6.12.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW MONDAY'S AM EARNINGS TIMES & ESTIMATES!

(NONE.)

Monday 6.12.23 After Market Close:

Spoiler: CLICK HERE TO VIEW MONDAY'S PM EARNINGS TIMES & ESTIMATES!

Tuesday 6.13.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW TUESDAY'S AM EARNINGS TIMES & ESTIMATES!

(NONE.)

Tuesday 6.13.23 After Market Close:

Spoiler: CLICK HERE TO VIEW TUESDAY'S PM EARNINGS TIMES & ESTIMATES!

Wednesday 6.14.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S AM EARNINGS TIMES & ESTIMATES!

Wednesday 6.14.23 After Market Close:

Spoiler: CLICK HERE TO VIEW WEDNESDAY'S PM EARNINGS TIMES & ESTIMATES!

Thursday 6.15.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW THURSDAY'S AM EARNINGS TIMES & ESTIMATES!

Thursday 6.15.23 After Market Close:

Spoiler: CLICK HERE TO VIEW THURSDAY'S PM EARNINGS TIMES & ESTIMATES!

Friday 6.16.23 Before Market Open:

Spoiler: CLICK HERE TO VIEW FRIDAY'S AM EARNINGS TIMES & ESTIMATES!

(NONE.)

Friday 6.16.23 After Market Close:

Spoiler: CLICK HERE TO VIEW FRIDAY'S PM EARNINGS TIMES & ESTIMATES!

(NONE.)

 

And finally here is the most anticipated earnings calendar for this upcoming trading week ahead-
($ADBE $ORCL $KR $ACB $ATEX $ITI $LEN $MPAA $JBL $ECX $POWW $HITI $MMMB $CGNT $WLY $RFIL)


If you guys want to view the full earnings post please see this thread here-

• Most Anticipated Earnings Releases for the week beginning June 12th, 2023 <-- click there to view!

 

Top of the morning StonkForumers! Happy Monday to all of you and welcome to the new trading week and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are a little over 2 hours from the US cash market open.

GLTA on this Monday, June the 12th, 2023!

 

Good Monday morning StonkForumers!

Here is this morning's pre-market news thread for those of you wanting to get a quick read before today's open-
<-- click there to read!

Hope everyone has a great new trading week ahead!

 

Morning Lineup - 6/12/23 - A New and Much Different Week
Mon, Jun 12, 2023

Continuing the trend from last week and the last several months for that matter, equity futures are indicated higher this morning with the Nasdaq leading the way. The S&P 500’s bull market was confirmed last Thursday when it closed 20%+ from its October 12th low, but it will quickly face a big test this week with important inflation data and a Fed meeting culminating on Wednesday.

There hasn’t been a whole lot of economic data overnight in Asia or Europe, but Japan did report a larger-than-expected decline in PPI, and Machinery Tool Orders were down over 22% y/y in May after falling 14.4% in April. With data suggesting slower economic activity than expected, treasury yields are lower with the biggest moves at the short end of the curve, and crude oil is back under $70 per barrel to $68.43.

Barring an epic collapse in stock prices today, the S&P 500 will have gone eight months without hitting a new low after falling 20% or more from a 52-week high. We discussed how this period compares to prior periods and how the market performed going forward in this weekend’s Bespoke Report, but the chart below compares the S&P 500’s performance in the eight months coming off October’s lows to the eight months that followed each of the prior lows.

With a gain of 20.2%, the S&P 500 just barely moved into official bull market territory last week and avoided being just the third period (along with 1947 and 1957) of the fourteen in which the S&P 500 did not reach the 20% threshold for a bull market in the first eight months of a rally off the lows. You’ll see in the chart that the S&P 500 was also up less than 20% eight months after the September 2001 low, but in that period, it had already rallied 20% and was in a new bear market once the eight-month anniversary of the September low occurred. While the S&P 500 managed to make it into bull market territory last week, its gain in the first eight months of the rally is just over ten percentage points weaker than the average for all fourteen prior periods which helps to explain why, if you don’t have exposure to Technology and Communication Services, it may not exactly feel like a bull market.

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Monday, June 12th, 2023.

 

Top of the morning StonkForumers! Happy Tuesday to all of you and welcome to the new trading day and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are a little over 2 hours from the US cash market open.

GLTA on this Tuesday, June the 13th, 2023!

 

Morning Lineup - 6/13/23 - 11 in a Row
Tue, Jun 13, 2023

Futures are little changed, and that’s understandable given the focus on the release of May CPI. Outside of the US, the PBoC lowered its 7-day reverse repurchase rate by 10 basis points, and there are reports of other policy decisions under discussion. Oil prices are higher, but with WTI at $68 a barrel, it’s hard to say that prices are rallying. Ahead of the May CPI, small business sentiment from the NFIB came in slightly higher than expected at a level of 89.4 versus expectations for a reading of 88.5. In individual stock news, shares of Zions Bancorp (ZION) are down 2% after the company noted at an investment conference that they expect loan growth to moderate.

The May CPI report just hit the tape, and both the headline and core readings were right in line with forecasts on a m/m basis. On a y/y basis, headline CPI was one-tenth lower than expected (4.0% vs 4.1%) while the core reading came in a tenth higher at 5.3% versus the 5.2% forecast. There’s been little change in markets in reaction to the report, and there’s nothing here to suggest that the Fed can’t pause tomorrow, although the hotter-than-expected y/y reading in the core reading is probably more negative than the fact that the lower-than-expected headline reading is positive.

With the release of the May CPI, the pace of increase in y/y inflation has now declined for eleven straight months. In the history of the report dating back to the early 1900s, this is just the third time that the y/y reading has decelerated versus the prior month’s reading for ten or more months. This month’s decline topped the ten-month streak that ended in July 2012, and the only streak that was longer lasted 12 months and ended in June 2021 just after WWI and the Spanish flu epidemic. During that 12-month streak, the y/y rate of inflation dropped from a peak inflation rate of 23.7% to deflation of 15.8%. Talk about a reversal. In the current streak, the rate of inflation has only declined just over 5 percentage points from a peak of 9.1% to May’s reading of 4.0%

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Tuesday, June 13th, 2023.

 

Morning Lineup - 6/14/23 - Time Changes Everything
Wed, Jun 14, 2023

Futures are mixed this morning, but the Nasdaq is indicated to open higher, and the May read on PPI hasn't hurt sentiment. Headline PPI fell 0.3% m/m versus expectations for a decline of 0.1%. Ex Food and Energy, they increased 0.2% which was right inline with expectations. On a y/y basis, headline PPI was up just 1.1% compared to forecasts for an increase of 1.5%, and ex Food and Energy, they rose 2.8% versus forecasts for an increase of 2.9%. PPI certainly isn't as closely followed by markets as CPI, but these numbers suggest that the headwind of inflation pressures continues to wane.

A year ago today, the S&P 500 was just entering bear market territory following what was a sharp sell-off due to the Fed signaling to investors that not only were rate hikes coming, but they were coming in big bites. After a Michigan Confidence report showed consumer inflation expectations were rising more than expected, the FOMC went on to hike rates by an unprecedented 75 basis points for four consecutive meetings.

The snapshot from our Trend Analyzer below shows where the major US equity index ETFs stood relative to their trading ranges as of the close on 6/13/22. Leading the way to the downside, the Nasdaq 100 was down over 30% YTD, but nine indices were down over 20%. The week leading up to June 13th had been especially painful as every index ETF in the screen was down over 7% in the prior week, and most were at least 10% below their 50-day moving averages (DMA) and trading at ‘extreme’ oversold levels.



What a difference a year makes. As we head into the June FOMC rate decision this year, the Fed has signaled that after ten straight meetings where they hiked rates, today will be the first time in over a year that the committee leaves rates unchanged. Instead of inflation expectations surging, this week’s NY Fed Survey of Consumer Expectations showed that one-year inflation expectations are at the lowest level since May 2021, and three-year expectations are actually slightly below their ten-year historical average.

From a market perspective, whereas the S&P 500 was just entering bear market territory at this time last year, it is now just entering bull market territory as the S&P 500 finally closed 20% above its October 12th closing low last Thursday. Contrast the way the snapshot of index ETFs from our Trend Analyzer one year ago looked with the way it looks as of today. Now, the Nasdaq 100 is leading the way to the upside with a gain of over 30%. All but three of the index ETFs are up over 2% in the last week, and most of them are trading at least 5% above their 50-DMAs, and every single one of them are trading at ‘extreme’ overbought levels.



Historically, the market’s reaction to short-term ‘extreme’ oversold levels is very different in magnitude to how it responds to short-term ‘extreme’ overbought levels but given the sharp rally of the last couple of weeks, it shouldn’t be a surprise, if the rally we’ve seen experiences at least a pause for the next several days.