Tucker Financial Weekly Market Review: July 22, 2022

Weekly Market Report: July 22, 2022

Last week we saw increasing economic concerns both domestically and abroad and a relatively downbeat earnings calendar met by a strong move higher in global risk markets, keeping in line with the market’s tendency to look beyond today’s headlines. While we don’t think we are out of the woods just yet, U.S. equities did cross through some key technical thresholds on their way to solid 2.55% gains, now sitting 7.8% above the June 17 lows, while developed international (+3.25%) and emerging international (+2.05%) both posted strong gains as well. Oil fell back below $95bbl while industrial metals posted gains netting a 0.75% gain for composite commodity markets. Interest rates continued to fall, particularly in the belly of the curve leaving the 10yr at 2.77%.

Market Anecdotes

• Last week the S&P 500 and Nasdaq both managed to break back above their 50-day moving averages which had been the longest sub-50-dma for the S&P 500 since the 2008 Financial Crisis. 
• 21% of the S&P 500 has reported 2Q earnings with blended bottom- and top-line growth of 4.8% and 10.9% respectively. Beat rates and beat margins are both below their 5-year averages with both unusually high 2Q 2021 comparisons and slowing macro environment contributing. 
• A bear market and looming potential recession has pressed S&P 500 valuations from a record highs of 27.2x down to 17x, much closer to its historical average. 
• Renmac noted that overdone negative investor sentiment, including the recent BoA/ML Fund Manager Survey, has been one of the more consistent rally indicators during the bear market which was on display again last week. 
• With the FOMC meeting this week, Bianco Research noted the Fed has never stopped hiking rates until the funds rate exceeded CPI and given the current respective levels of 1.75% and 8.60%, we have quite a gap to close. 
• The ECB began its first rate tightening cycle in eleven years last week with a 50bps hike while the BoJ maintained their ultra-loose -0.10% reference rate, reiterated its pledge to continue to be a buyer of 10yr JGBs at a yield of 0.25%, and reinforced its dovish forward guidance.
• While the 10yr UST yield has fallen from mid-June level of 3.49% to 2.77% last week, mortgage rates too peaked above 6% and have stabilized around 5.75%.
• Interestingly, high yield bond spreads have fallen from recent highs of 5.99% on July 5th back below 5% last week, implying a 12-month spread implied default rate of 6.65% – notably below normal recessionary default rates of 8%. 
• While the FAO food price index has decelerated for the past three months, it was up 23.1% in June – why we welcome a Russia/Ukraine deal signed last week lifting the Black Sea blockade of Ukrainian grain (and fertilizer) exports and allow Russia to resume grain exports as well.
• Thankfully, Europe’s Nord Stream 1 pipeline resumed flows of natural gas last week.
• In what will no doubt be a movie one day, it became public last week that an ex-Coinbase employee (Ishan Wahi) was caught frontrunning token issuance and arrested attempting to flee the country to India.

Economic Release Highlights

• U.S. flash PMIs for July fell from 52.3 to 47.5 with more weakness across the service sector than anticipated and manufacturing easing 0.4 to 52.3. 
• The June Conference Board LEI fell by 0.8% after a 0.4% decline in May. 
• Eurozone flash PMIs for July dropped from 52.0 last month to 49.4, now in contractionary territory with June Housing Starts (1.559M vs 1.588M) and Permits (1.685M vs 1.666M) both came in at consensus expectations. 
• June Existing Home Sales of 5.12M came in under consensus estimate of 5.395M and under the low-end consensus range of 5.15M to 5.5M. 
• The July Housing Market Index again fell short of consensus expectations, registering 55 versus consensus forecast of 66. 
• Eurozone CPI for June rose 0.81% MoM and 8.65% YoY.