Morning Roundup

By Mark Masterson on July 24, 2023

Good morning,

Below are the news items moving markets today:

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Executive Summary:

Happy Monday!

I’m back in the saddle and we have a good deal to discuss. 

It will be a very busy week.

First – we have the Fed meeting……FEDERAL RESERVE THIS WEEK:

• FED INTEREST RATE DECISION (WED. 2:00PM ET)
• FED FOMC STATEMENT (WED. 2:00PM ET)
• FED CHAIR POWELL SPEAKS (WED. 2:30PM ET)

At this point, most expect the Fed to raise by .25%, then stop.  The odds of a Fed rate hike beyond July to ~33% (Bloomberg).

We also have the European Central bank (ECB) and the Bank of Japan (BOJ) meeting this week.

So – a great deal of central bank activity and chatter this week. 

In addition to the central banks, we have a full slate of economic data to watch…..U.S. ECONOMIC DATA THIS WEEK:

• SERVICES PMI (MON.)
• CONSUMER CONFIDENCE (TUES.)
• NEW HOME SALES (WED.)
• FED RATE DECISION (WED.)
• Q2 GDP (THURS.)
• JOBLESS CLAIMS (THURS.)
• PENDING HOME SALES (THURS.)
• PCE INFLATION (FRI.)

Finally – it’s a very busy week of earnings from some of the major names.

You can see that this week has 48% of the S&P 500 reporting…..

Goldman Sachs 7 15 23

A few economic charts I saw and marked from last week.

The chart below shows that real gross domestic income year over year is now negative.

It has marked a recession every time……

Grey areas = recessions

NorthmanTrader.com 7 24 23

And another chart showing yield curve inversions and recessions for those who believe it will be different this time…..

This inversion is very deep.  The gray bars follow the inversions….

Yield curve inversions and recessions.  What do you expect to happen from here?

Bespoke.com 7 23 23

Finally, leading economic indicators last week were reported…..

US Leading Economic Indicators now -7.8% YoY, lower than expected and the 15th consecutive negative month.

Last negative streak this long was 2008.

Stephen Geiger 7 24 23

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Articles of Interest:

• China:
  • China’s Politburo signal easing property policies and adopt a plan to resolve local debt risks (Bloomberg)
  • China encourages private investment in some key sectors to boost growth (Reuters, Bloomberg)
• Economy:
  • Demand for US homes continues to outpace supply, lifting prices, posing challenge for Fed’s inflation fight (Bloomberg)
• Central banks:
  • BOJ officials said to probably consider a sharp increase to their inflation forecast for this fiscal year (Bloomberg)
  • Japan FX chief Kanda makes rare comments on BOJ policy after Friday’s yen selloff (Reuters)
• Market:
  • Stock market’s 2023 surge faces Fed test ahead of massive week of earnings (Bloomberg)
  • US junk loan market hit with flurry of credit rating downgrades in sign that leveraged companies struggling with rising rates (FT)
• Corporate:
  • Musk changes Twitter’s logo, replacing its signature blue bird with a stylized X (Bloomberg)

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Charts of the day:

A look around sentiment to start the week……

Below chart shows that the stock market is very overbought relative to bonds historically…..

‘Stocks are very overbought relative to bonds.’ https://thedailyshot.com/2023/07/21/us-economy-will-expand-well-below-its-growth-potential/ via

@SoberLook

@Lvieweconomics

Longview Economics 7 23 23

Money is flowing to tech (yellow line) very aggressively.

I take note of the green line – which is energy. 

Its interesting that investors are selling energy while inflation starts to perk up again.

Energy still looks like an opportunity moving forward

Sector fund flows https://thedailyshot.com/2023/07/18/the-stock-market-signals-a-rebound-in-us-factory-activity/ via

@SoberLook

Deutshce Bank 7 22 23

About tech…….

Be very careful in tech.

I know – it’s a “no brainer.” 

Especially in the big 7

But…. This is the most stretched they have been over the 200 day moving average in 10 years as far as I can tell.

To me, this is screaming for a reversion move lower to close that distance. 

Notice how far down that blue line is from the current level…..It’s rare to get this stretched.

The CNN Fear and greed index is very stretched…..

Next Tuesday the market will have remained in an extreme greed state for an uninterrupted seven weeks. The chart of the S&P 500 is updated to reflect the relative peaks of both the CNN Fear & Greed Index, and the NAAIM Exposure Index. My interpretation is simple, participants are buying greed. 

@Tomthe trader 7 23 23

Everyone is in the pool today…..

Active managers had less than 20% exposure to equities last October when the S&P 500 was at 3,500.

Today their equity exposure has jumped above 99% with the S&P 500 above 4,500. This is the highest exposure since November 2021.

Charlie Bilello 7 24 23

The Sentiment trader smart money/dumb money index shows retail traders are the most optimistic they have been in a long, long time.

This is normally not a good sign for the stock rally.

Sentimenttrader.com 7 24 23

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Quote of the day:

Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat.”

— Charlie Munger