In this week’s market review in what was a chaotic week, we look at how the financial markets reacted to bad news on inflation, and rising target rates from Central Banks, and solid earnings from tech megacaps which brought some solace to traders though worries about recession risk remain.
After Thursday’s data showed the U.S. economy contracted in the second quarter, stocks rose as traders bet rates would rise more slowly. But is this rally within a bear market or the start of a new bull market. I will give you a clue – hopium is driving things not logic.
But after a horrific first half, the S&P 500 had its best month since November 2020 and Nasdaq 100 had its strongest performance since April of that same year. But this could come to haunt the Federal Open Market Committee.
US financial conditions are looser than they were when Fed hiked in March. So the spike raises the question of when the rebound itself starts to work against the goal of draining bloat from the economy.
It’s an issue investors must weigh in calculating the recovery’s staying power. “Our view is that earnings for all equity classes likely will peak in 2022 and move lower as the economy weakens, revenue growth stalls and input costs remain elevated,” strategists with the Wells Fargo Investment Institute wrote in a note on Thursday.
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One characteristic of a Bear market are relief rallies, which start strong, but which also eventually run out of steam.
We have seen this during the week, as a gauge of global stocks fell on Friday to end the trading week on a down note after five straight sessions of gains. In addition, the dollar dipped against a basket of major currencies after soft data on U.S. business activity was released.
Friday was wobbly on Wall Street which posted modest losses in early trading but declines on the S&P 500 accelerated as Big Tech names such as Meta and Alphabet lost ground in the wake of earnings from Snap Inc which plunged 39.08%.
Defensive sectors such as utilities and consumer staples were among the few advancers
“Every rally we have had during this bear market, there have been a number of sharp rallies and then they fade and we set new lows and that has been a pretty consistent pattern here,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “Everybody is looking for the turn, everybody is trying to guess at when we get a sustained rally, and everybody is hoping for one, but to me there is still a lot of unknown ahead of us.”
[CONTENTS] 0:00 Start 0:15 Introduction 0:12 Bear Market Bounces 3:30 Fed and Economic Data 5:40 US Markets 8:20 US Dollar 09:40 Oil 11:10 European Markets 14:00 Wheat Agreement 18:20 Gold 19:30 Asian Markets 20:20 Australian Markets 23:20 NAB Rate Outlook Up 24:30 Outlook 27:25 Crypto 28:00 Summary and Close
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One characteristic of a Bear market are relief rallies, which start strong, but which also eventually run out of steam. We have seen this during the week, as a gauge of global stocks fell on Friday to end the trading week on a down note after five straight sessions of gains.
In addition, the dollar dipped against a basket of major currencies after soft data on U.S. business activity was released.
Friday was wobbly on Wall Street which posted modest losses in early trading but declines on the S&P 500 accelerated as Big Tech names such as Meta and Alphabet lost ground in the wake of earnings from Snap Inc which plunged 39.08%.
Defensive sectors such as utilities and consumer staples were among the few advancers
“Every rally we have had during this bear market, there have been a number of sharp rallies and then they fade and we set new lows and that has been a pretty consistent pattern here,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “Everybody is looking for the turn, everybody is trying to guess at when we get a sustained rally, and everybody is hoping for one, but to me there is still a lot of unknown ahead of us.”
[CONTENTS]
0:00 Start
0:15 Introduction
0:12 Bear Market Bounces
3:30 Fed and Economic Data
5:40 US Markets 8:20 US Dollar
09:40 Oil
11:10 European Markets
14:00 Wheat Agreement
18:20 Gold
19:30 Asian Markets
20:20 Australian Markets
23:20 NAB Rate Outlook Up
24:30 Outlook
27:25 Crypto
28:00 Summary and Close
Go to the Walk The World Universe at https://walktheworld.com.au/
The latest edition of our finance and property news digest with a distinctively Australian flavour.
In this week’s market review, consider the hangover coming as the punch bowel of cheap funds is taken away. We start as always with the US, go across Europe and Asia, and end in Australia. Why, because like it our not our fate will be largely determined by what happens in the US – which drives the price of money via the US dollar, and China, our main export partner.
The US FOMC raised interest rates in June by 75 basis points in June. And last month, the U.S. central bank also started reducing the size of its enormous balance sheet. Until September, the Fed will be cutting $45 billion a month from its massive holdings, and it will increase to $95 billion, almost twice as much as it did in the previous episode of quantitative tightening. So the value of the Fed’s assets has already peaked, reaching $8.95 trillion in mid-May 2022.
But, although the Fed is tightening its monetary policy, its stance remains accommodative. According to the Taylor rule, the federal funds rate shouldn’t be just between 1.50% and 1.75%, but at least above 5% .
So the U.S. central bank remains behind the inflation curve and would have to raise interest rates much further to combat high inflation. But in the previous Fed’s tightening cycle of 2017-2019 which led to the repo crisis, forced the U.S. central bank to reverse its stance and cut interest rates.
Given how fragile the financial system is and how much indebted the American economy is, it’s almost certain that the current monetary policy tightening will lead to a sovereign-debt crisis or another kind of financial crisis.
[CONTENT]
0:00 Start 0:15 Introduction 00:46 Removing The Punch Bowel 2:45 US Dollar 4:00 Economic Indicators 5:45 US Markets 08:00 Bonds 8:50 European Markets 10:25 Oil and Gold 12:40 Asian Markets 14:00 China Economics 15:30 China Property Bust 19:25 Australian Market 22:00 Crypto Crash 23:00 Conclusion
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Stocks wobbled but ultimately ended lower on Wednesday, as the fastest pace of inflation in decades stoked bets that the Federal Reserve will be forced to deliver a much larger than expected 1% rate hike later this year. The S&P 500 closed down 0.5%, the Dow Jones Industrial Average fell 0.7%, or 208 points, the Nasdaq fell 0.1%.
U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists’ forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.
This report will make for very uncomfortable reading at the Fed,” it added. US inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.
The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs. The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, above forecasts.
The red-hot inflation figures reaffirm that price pressures are rampant and widespread throughout the economy and taking a bigger toll on real wages, which are down the most ever in data back to 2007. The inflation data will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and congressional Democrats whose support has slumped ahead of midterm elections.
“Rather than cooling down, inflation is heating up,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated.”
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Today’s post is brought to you by Ribbon Property Consultants.
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Stocks wobbled but ultimately ended lower on Wednesday, as the fastest pace of inflation in decades stoked bets that the Federal Reserve will be forced to deliver a much larger than expected 1% rate hike later this year. The S&P 500 closed down 0.5%, the Dow Jones Industrial Average fell 0.7%, or 208 points, the Nasdaq fell 0.1%.
U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists’ forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.
This report will make for very uncomfortable reading at the Fed,” it added. US inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.
The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs. The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, above forecasts.
The red-hot inflation figures reaffirm that price pressures are rampant and widespread throughout the economy and taking a bigger toll on real wages, which are down the most ever in data back to 2007. The inflation data will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and congressional Democrats whose support has slumped ahead of midterm elections.
“Rather than cooling down, inflation is heating up,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated.”
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.
Buying property, is both challenging and adversarial. The vendor has a professional on their side.
Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.
Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Wall Street ended little changed on Friday after a volatile session in which investors tried to comprehend how a robust jobs report would influence the U.S. Federal Reserve and its plans to aggressively hike interest rates.
“I’m calling this period right now a recession obsession,” BMO Capital Markets Corp. chief investment strategist Brian Belski said .“Institutional investors are not positioned for any kind of upside move. That’s why you are seeing these sharp moves on a day like today and certainly over the last few days in terms of a short squeeze. We remain positive and think people are way too negative.”
Atlanta Fed President Raphael Bostic, until recently among the central bank’s most dovish policymakers, said on Friday he “fully” supports another 75-basis-point rate rise later this month.
Speaking later on Friday, New York Federal Reserve President John Williams did not specify if he favors a half point or three-quarter point increase at the Fed’s upcoming July meeting, but acknowledged rising interest rates were affecting the economy.
[Content]
0:00 Start 0:15 Introduction 0:27 Recession Obsession 1:35 US Non Farm Payrolls 4:45 US Markets 10:15 Gold 10:35 European Markets 12:00 Oil 12:40 Asian Markets 14:20 Australian Markets 16:15 May Trade Surplus 18:30 Market Trends 21:25 Crypto 22:15 DXY 22:35 Summary and Close
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Apologies to our podcast users, we have had technical issues which stopped us posting – now fixed. We will upload archive recordings when we can!
In today’s show, we review the weeks market action, starting in the US – by far the most influential market, followed by Europe, Asia and Australia. There is no place to hide. Wealth is being destroyed. And there is no end in sight. Data is flagging recession, as central banks continue to raise rates and given the astronomical debt burden out there this is a big deal.
Even conservative investment strategies are being hit. “This is a train wreck,” says Alex Dunnin, executive director of research house Rainmaker Group. “When a traditionally conservative strategy is getting the worst returns then all bets are off. It doesn’t matter where you go, almost everyone will be in pain.”
The S&P 500 notched its worst start since 1970, plunging 20.6% between January and June. The Dow had its largest first-half drop since 1962, and the Nasdaq Composite had its largest percentage decline ever. And US Stocks slipped over the five days, with the S&P 500 erasing part of its rally in the previous week. Down more than 2%, the index just endured its 11th drop in 13 weeks.
All three indexes posted losses for the week. Despite this Wall Street rallied to close higher on Friday in light trading, with investors heading into the long holiday weekend and embarking on the second half of year looking for the next market-moving catalyst. All major groups in the S&P 500 rose, while the tech-heavy Nasdaq 100 underperformed. Treasuries surged after an ugly first half as weak economic data added to recession fears.
The US economic data was frankly horrid this week. An influx of data showing softer consumer spending, sagging sentiment and subdued manufacturing suggest a US economy with a more fragile foundation, prompting several forecasters to lower their estimates for growth.
Strategists at Goldman Sachs told clients on Thursday that stocks could keep falling later this year since “equities are pricing only a mild recession” and more companies will likely begin reducing their earnings expectations. In the event of a recession, Goldman’s team sees the S&P 500 dropping to 3,600, or 4.9% below Thursday’s close.
[CONTENT]
0:00 Start 0:15 Introduction 2:23 US Weak Economic Data 8:22 GDP Forecast: Down 9:00 Bond Yields 11:00 Buying The Dip 13:50 US Markets 16:00 Oil, Gold and Silver 17:00 Euro-zone Inflation Up 19:18 European Markets 20:00 Asian Markets And China Bonds 22:25 Australian Markets 24:40 Crypto Down 25:47 Tough Times Ahead
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Digital Finance Analytics (DFA) Blog
No Escape! Recession Will Destroy Wealth. Period. [Podcast]
So, as we approach the halfway mark through the year, it’s important to note that U.S stocks are on track to mark their worst first half of the year in more than 50 years. The S&P 500 is down around 18% year-to-date, on track for its worst first half of any year since 1970, and the NASDAQ closer to 30% as the Fed tightens monetary policy in its fight against the highest inflation in decades. So relative to holding cash since the start of the year, stocks have been trashier.
Bonds, which investors typically count on to counterbalance stock declines in their portfolios, have fared little better: The U.S. bond market, as measured by the Vanguard Total Bond Market Index fund, is down 10.8% for the year to date, putting it on pace for its worst performance in modern history.
That said of course the value of cash is being deflated in real terms by high inflation, so its not perfect, but lessons from history suggest that sometimes it’s a reasonable holding place, until markets bottom. And with investor expectations fluctuating between continued high inflation and an economic downturn caused by a hawkish Fed, few believe the market’s volatility will dissipate anytime soon. Remember that on Thursday, Fed Chair Jerome Powell said the central bank’s focus on curbing inflation was “unconditional”, adding to fears about more interest rate hikes.
[CONTENTS] 0:00 Start 0:15 Introduction 1:15 Worst First Half 2:30 Inflation Control Unconditional 4:10 Leading Indicators 9:30 More FED comments 13:14 US Market 14:15 Oil 16:54 US Bank Stress Tests 19:30 European Markets 20:58 Asian Markets 23:10 Australian Markets 27:40 Crypto and Harmony 29:50 Conclusion and Close
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
This week, The U.S. Federal Reserve announced an interest rate hike of 75 basis points, its largest increase since 1994, the Swiss National Bank unexpectedly lifted rates by 50 basis points on Thursday, while the Bank of England on the same day raised its interest rates by 25 basis points, hiking for its fifth consecutive meeting. The main outlier is the Bank of Japan, which stuck with its strategy of pinning 10-year yields near zero at its policy meeting earlier Friday. However, this has done little to ease worries that inflation and rate hikes are going to curb economic growth for years to come.
And It was one of the most dramatic weeks in the short history of the cryptocurrency market, bookended by the type of announcements investors fear the most from a counterparty: We’re sorry, but we just can’t return your money right now. It all started late Sunday, when a sort of crypto shadow bank called Celsius Network suspended withdrawals from depositors who had been enticed by sky-high interest rates that, in retrospect, were likely too good to be true. By the end of the week, on the other side of the world in Hong Kong, the digital-asset lender Babel Finance also froze withdrawals.
Just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, the “cockroach theory” springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more hiding behind the fridge or under the sink. Wealth destruction is now a thing.
[Content]
0.00 Start 0.15 Introduction 2:10 Federal Reserve Inflation Battle 3:30 GDP Forecast Down 7:25 US Markets 10:00 European Markets 11:20 Asia Pacific Markets 11:40 Japan Bond Crisis 13:05 Australian Markets 18:00 Crypto Winter 23:30 Crypto Traders Turn On Each Other 29:05 Conclusion and Close
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