Tucker Financial Weekly Market Review: August 12, 2022

Weekly Market Report: August 12, 2022

Markets responded positively to an inflation superfecta last week with the economic calendar delivering four cooler than expected inflation reads, a stark contrast to a long string of inflation data points coming in hotter than expected. U.S. equity markets rose over 3% for the week putting the bounce off the June 17th low at 16.5% and sitting at a 50% retracement of the sharp 2022 decline experienced in the first half. Interest rates didn’t move meaningfully last week, likely looking at the Fed more so than the week’s inflation readings. Commodities were up broadly with WTI oil closing back above $90 and increases across grains and industrial metals as well. The USD continued on its weakening trend since mid-July, down 0.93% for the week.

Market Anecdotes

  • In a very rare occurrence, all the news related to inflation last week was positive (lower than expected) including July’s CPI, NY Fed Survey of Consumer Expectations, PPI, and Import Prices. 
  • Given inflation drives Fed policy and Fed policy informs the economy and risk assets in general, a close look and monitoring of specific inflation drivers feels important. Doing so makes clear the importance of shelter, food, energy, and wages that seep into most components. 
  • Four Fed officials took to the podium last week stressing the fact that inflation is nowhere near FOMC target levels and there is much left to be seen. Futures markets are pricing a peak rate of 3.50%-3.75% from February to May 2023 followed by cuts in the second half of 2023. 
  • Not to be dismissed are three formidable moats around the U.S. economy including excessive job openings, pent up demand, and credible Fed policy which may well work to insulate the U.S. economy for the next several months. 
  • We’re nearing the unofficial end of earnings season (WMT Tues) with more of a limp than a couple weeks ago. Blended S&P 500 earnings growth of 6.7% with top-line revenue growing at a robust 12.5%. 
  • We’ve highlighted the downbeat sentiment consumers, investors, and small businesses have had for several months now. Renewed Wall Street strategist predictions adds them to the same list. 
  • Housing market dynamics, weak domestic demand, a contraction in exports, and persistent zero covid public health policies are seemingly limiting the modest stimulus measures undertaken in China, leaving strategists with an underwhelming outlook for Chinese equity markets.
  • In a cheery report last week, BCA’s Geopolitical team suggested the odds of WWIII could rise close to 20% over the next two years.

Economic Release Highlights

  • Headline and core July CPI data of 8.5% YoY / 0.0% MoM and 5.9% YoY / 0.3% MoM all came in exactly 0.2% lower than consensus forecast and at or below the low end of the range. 
  • The July Producer Price Index surprised to the downside with both MoM (-0.5% vs 0.3%) and YoY (9.8% vs 10.3%) readings coming in below consensus expectations. 
  • UofM Consumer Sentiment for August beat consensus expectations, registering 55.1 versus forecasts for 52.2. 
  • The July NFIB Small Business Optimism Index came in just above consensus at 89.9 versus forecast of 89.2 and up slightly over the prior month. 
  • Mortgage purchase applications fell 1.4% last week following a 1% increase the prior, leaving applications at the lowest level since April 2020 and down 18.5% versus last August.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: August 5, 2022

Weekly Market Report: August 5, 2022

Markets last week continued to digest a heavy slate of corporate earnings and a modest economic calendar punctuated with the July jobs report on Friday. What had been another good week was met with some policy anxiety in response to Friday’s extremely strong jobs report which implied the Fed has more work to do to tame inflation and a hot job market. U.S. equity markets managed to finish up for the week with technology and small caps setting the pace while developed international markets lagged. Interest rates moved sharply higher, in response to increased likelihood of a more hawkish FOMC, with shorter 1yr-5yr rates all increasing nearly 30bps. Commodities fell 6% on the back of a sharp decline in oil prices (-9.74%) to close below $90.

Market Anecdotes

  • The move higher in interest rates last week poses a threat to one of the biggest drivers of positive equity market returns we experienced in July. Falling interest rates last month also contributed greatly to the recent decline in the USD. 
  • Interesting anecdote on the impact of P/E multiple compression on the Russell indices is that the R1000 Value now includes prior growthy names such as Netflix and Facebook while the R1000 Growth included Coca Cola and Procter & Gamble. 
  • Market reaction to the overwhelmingly robust July jobs report can be categorized as ‘good news is bad news’ with futures pricing in a more aggressive tightening path and a higher terminal rate. 
  • Inflation data for July and August will ultimately determine the Fed’s path and decision in September but the robust labor market certainly gives them some cushion. 
  • Global inflation has yet to abate but falling commodity prices (including oil) are providing some hope. Oil’s notable break to the downside is clear but Russia/Ukraine, China zero Covid, and global growth combined translate to extreme levels of uncertainty. 
  • Gas prices have fallen for over 50 consecutive days and $1.00 from the peak, now around $4.11 per gallon with some areas of the country actually seeing a two handle on a gallon 
  • How much growth will have to recede to achieve lower inflation is the million-dollar question to which nobody has the answer. Albeit a notably different inflation backdrop, a look at the early 1980’s does little to inspire confidence. 
  • Over 800 companies have reported 2Q earnings thus far with decent beat rates and underwhelming beat magnitudes. Upward guidance has fallen from 20% to 10% over the past few quarters but 10% is still an impressive number. S&P 500 earnings and revenue growth sit at 6.7% and 13.6%. 
  • The BCA bull contingency noted the strong possibility of 2Q GDP being revised to positive growth in addition to noting Q1 real GDI increased 1.8% in the first quarter. 
  • Renmac noted Italy’s fundamental fiscal unsustainability for which the ECB TIP can only buy time. Substantial fiscal reform and/or debt restructuring seem increasingly likely at some point.

Economic Release Highlights

  • July’s Employment Situation reported new jobs of 528,000 far exceeding consensus of 250,000, taking the unemployment rate down one tick to 3.5%. 
  • Labor market participation fell one tick to 62.1% and average hourly earnings came in higher than consensus with growth rates MoM (0.5% vs 0.3%) and YoY (5.2% vs 5.0%). 
  • The June JOLT Survey revealed 10.698mm job openings, fewer than the 11.0mm forecasted and well below the 11.303mm openings in May. 
  • The July ISM Manufacturing Index registered 52.8, slightly higher than the consensus forecast of 52.2. 
  • The July ISM Services Index came in at a robust 56.7, well above consensus of 53.0 and higher than the high end of the forecasted range.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: July 29, 2022

Weekly Market Report: July 29, 2022

Markets last week digested a highly anticipated FOMC meeting, a very busy economic calendar, and the busiest week of earnings reports for the Q2 reporting season. The net effect was a strong rally in risk assets with U.S. equity markets rising over 4% as well as non-U.S. developed (+3.7%) and emerging (+1.4%). Bond yields fell, mostly in the belly of the curve, leaving the 10yr UST yield at 2.67%. Commodities rallied over 4% with broad based gains across energy, grains, and metals while the USD weakened in sympathy with the risk-on tone of the markets.

Market Anecdotes

  • Last week’s FOMC meeting delivered the expected 75bps rate hike, bringing rates from zero to the Fed median projection of “neutral” (2.25%-2.5%) in four months (ala Volker). The Fed also abandoned forward guidance and highlighted attempts to balance growth and inflation risks.
  • Market reactions consisted of a risk asset rally, falling yields, and a tempering of future FOMC rate hikes. Markets see the terminal Fed Funds rate at 3.31% in January 2023, down notably from 4.06% in mid-June, and rate cuts beginning thereafter. The Fed has never stopped hiking before Fed Funds exceeded CPI.
  • The tug of war between Wall Street (growth focus) and the Fed (inflation focus) will be the key determinant for risk assets and the economy looking forward.
  • Inflation data is likely just beginning to moderate, but inflation expectations have moderated as TIPS break-evens, 5yr/5yr forwards, inflation swaps curve, and consumer survey data suggest.
  • Over 35% of the S&P 500 reported earnings last week. Positive earnings surprises grew to net a blended Q2 growth rate of 6% with beat rates and margins of 73% and 3.1% respectively. Revenue is growing at 12.3% with beat rates and margins of 66% and 2.5%.
  • Twisting yourself inside out to decide whether the U.S. is in recession? Q1 GDP of -1.6% followed by Q2 GDP of -0.9% viewed through a lens of the labor market, personal consumption, and the highly abnormal boom of pandemic recovery dynamics make the answer about as clear as mud.
  • With the Fed owning over 30% of the treasury market and actively in QT mode, the slope of the U.S. Treasury yield curve has likely lost its efficacy as an indicator.
  • Something in the energy markets of potential significant impact is the G7’s attempt to establish a global ‘buyers’ cartel’ to establish a price cap mechanism on Russian oil prior to the December 5th EU ban on insurance and services for vessels transporting Russian oil.
  • A closer look at U.S. money supply might be one of the best explanatory variables for elevated U.S. inflation relative to the rest of the world.

Economic Release Highlights

  • The June Personal Income & Outlays report revealed PCE inflation near consensus with headline readings of 1.0% vs 0.9% MoM and 6.8% vs 6.7% YoY and core readings of 0.6% vs 0.5% MoM and 4.8% vs 4.7% YoY.
  • June Personal Income & Outlays showed personal income (0.6% vs 0.5%) and personal consumption expenditures (1.1% vs 0.9%) both increasing more than expected.
  • Second quarter Employment Cost Index of QoQ 1.3% vs 1.1% and YoY 5.1% vs 4.6% registered higher than forecasts.
  • U.S. 2Q GDP registered -0.9% for the second quarter, within the consensus estimate range of -1.1% to 1.5%.
  • Euro area 2Q GDP accelerated from 0.5% q/q in Q1 to 0.7% q/q in Q2, significantly better than the 0.2% anticipated.
  • The Conference Board’s Consumer Confidence Index for July came in near consensus at 95.7 versus 96.8.
  • June New Home Sales of 590K were below consensus forecast of 664K and range of 620k-680k. Pending Home Sales (-8.6% vs -1.0%) missed notably to the downside.
  • May Case-Shiller Home Price Index up 1.3% over the prior month, below both forecast of 1.6% and range of 1.5%-2.1%.
  • June Durable Goods Orders surprised to the upside registering 1.9, well over consensus forecast of -0.5% and range of -2.5%-0.8%. Ex-Transportation (0.3% vs 0.2%) and Core Capital Goods (0.5% vs 0.2%) also beat to the upside.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

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.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

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Tucker Financial Weekly Market Review: July 15, 2022

Weekly Market Report: July 15, 2022

Last week brought us another up and down week with the official start of second quarter earnings and several highly anticipated economic reports as the key focus points. By the end of the week, we saw most global equity markets close down with U.S. (-1%), developed international (-1.5%), and emerging international (-3.6%). Inflation and growth concerns weighed heavily on risk appetite which translated to a strengthening USD, a rally in longer dated U.S. Treasuries, and a selloff in shorter dated U.S. Treasuries. Commodity markets were down again, losing 5.6% on the week, as oil closed back below $100bbl, gasoline prices fell but natural gas surged 16% to over $7.

Market Anecdotes

n eye watering July CPI report pushed market expectations for FOMC interest rate hike in July to 100bps immediately which slipped to 31% by week’s end. There was nowhere to hide across the subcomponents with gas, shelter, and food the driving forces.
• According to the New York Fed’s Survey of Consumer Expectations, the median 1 yr fwd inflation expectation surged to 6.78% while the median 3yr fwd fell to 3.62%.
• The strong USD should cut into inflation and GDP growth on a lagged basis, something the Fed is considering with respect to monetary policy. Softening commodity prices should also factor into near term inflation trajectory.
• Bespoke referenced a ‘bull whip effect’ as an interesting analogy to the aggregate demand and supply chain issues plaguing the economy since March 2020 in the form of an unprecedented pandemic demand shock and a series of overcompensations and over corrections by consumers, inventory intermediaries, logistics suppliers, producers, policy makers, and governments.
• The U.S. 2yr/10yr yield curve has fallen into its deepest inversion (-0.227%) since 2001 but the 3m/10yr (0.78%) remains slightly positive, at least until the FOMC hike later this month.
• Second quarter earnings started last week with reports from the banks. With 7% of the S&P 500 reported, we have a beat rate of 60% and a beat margin of 2%, taking blended earnings down to 4.2%. Revenue beats of 60% and beat margins of 0.8% are also coming in below average.
• The Bank of Canada hiked rates by 100bps and the RBNZ by 50bps to take both reference rates to 2.5%. The ECB meets this week and the FOMC on the 27th with markets pricing in rate hikes from both central banks as well.
• ZEW Survey of German investor sentiment fell to its lowest level since 2011 as inflation concerns abound. Natural gas concerns continue to rattle Europe with efforts to reduce reliance on Russian gas leading to increased likelihood that Russia will use the leverage while it still has it.
• Fresh political turmoil in Italy contributed to a rough week for European equities (-4.2%) with Mario Draghi tendering his resignation which was promptly refused by the head of state.
• A JPMorgan Chase report related the significant increase in interest rate (bond market) volatility to less market liquidity under the vastly expanded size and scope of the U.S. Treasury market noting BrokerTec data indicating only 25% of market depth relative to the past decade.
• Our strategists are discounting China’s record trade surplus posted in June as well as the 2.6t RMB infrastructure package recently announced.

Economic Release Highlights

• Retail Sales for June bounced back from May’s disappointing result with headline (1%a vs 0.9%e), ex-vehicles (1%a vs 0.6%e), and ex vehicles & gas (0.7%a vs -0.2%e).
• June CPI rose more than expected on the back of May’s upside surprise. Headline CPI jumped from 8.6% to 9.1% YoY and from 1.0% to 1.3% MoM. Core CPI moved from 6% to 5.9% YoY and 0.6% to 0.7% MoM.
• UofM Consumer Sentiment for July of 51.1 came in slightly higher than the forecast of 50.0 but was generally within consensus range of 48.4-53.0.
• NFIB Small Business Optimism Index tumbled to 89.5 in June, falling short of the 92.9 consensus estimate.
• June Industrial Production came in short of consensus (-0.2%a vs 0.1%e) with manufacturing output of -0.5% also missing consensus call for 0.2% growth.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

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