Turnaround Tuesday came a day late this week, but it will take more than one day to reverse the down trend. Not to mention, we have yet to break through the 3733 level on the S&P futures. Today’s move higher was spurred, in some part, by a recovery off the June lows. The shocking policy move by the BOE overnight also catalyzed some covering in markets, which lifted all assets off initial lows.

The negative momentum built and built and built, and the culmination was a day like today. There was a clear sell-off across the markets as indices tested their June lows (3639 on S&P futures and 11k on CCMP futures). The macro-environment remained little changed – 10-year yields remained above 3.67%, the resistance they blew through yesterday on the way to 4.0%. The dollar continued to steamroll everything in its path. The next technical target for the DXY is 120.

Another Fed came and went. But whereas in the past the adage has largely been, fade the first move, today the first move was the right one. Sure we had the typical knee-jerk, but post that, equities were quickly jerked lower and stayed that way. It was a given from the get-go that the Fed would be aggressive, and while there was some debate around a 100bp hike, the reasoning behind the increased hike had to do with just the latest hot CPI print.

Not the end to the week we were hoping for As I go to end the week with a view entrance that’s been used too often recently, it’s fitting – the same trends we have seen recently continue to be present. Still negative economic data combined with a yield curve that shows massive uncertainty in the short and long term gives investors plenty of pause as recession looms. Add on the fact that the US 10-year real yields are above 1%, the highest level since 2018, and the safe haven USD is the place to be. And yet, the VIX remains low – we seem due to grind lower (although a move like today is certainly harrowing). Positioning continues to be negative, with the latest non-commercial S&P futures data showing renewed selling. There’s plenty to talk about– triple witching was always going to induce some interesting moves, while unexciting (although slightly better than expected) University of Michigan data prevented the markets from a happy end to the week. There was a sour taste to the morning too – FedEx last night with a massive miss led it to its worst drop since the crash of the ‘80s. This led the S&P to dip below the short-term support we have been watching (3900 on S&P futures), although the 10-year yield couldn’t break its 3.5% resistance. The momentum to the downside continues, although for the optimists, the S&P bounced 6 out of the 8 weeks immediately post options expiry in 2022. There was certainly a defensive flavor to the day, with Staples, Telcos, and Utilities outperforming. Semiconductors also outperformed after INTC announced its dividend and a new processor. Any good news in such a damaged space sure to induce some covering. With the BofA Bull & Bear indicator barely ticking off of lows and overwhelmingly negative sentiment, contrarians must be licking their chops. Maybe things could finally get better once the Fed is out of the way (17% probability of a 100bp hike). Then again, why buy the dip now? Enjoy the weekend. 

The respite after Tuesday’s bludgeoning was, sadly, short-lived. We remain in the same range we have been in, and the market feels like it’s still waiting. For what though? Too much on the horizon to pinpoint one event. Yesterday the number of 12-month price lows rose to 103, and as short-term breadth continues to deteriorate, we remain cautious. Indices are still above short-term supports though – 3900 on S&P futures and 12,000 on NASDAQ 100 futures. The headline move was actually in gold today – it has inched closer to the lower end of the range it’s been stuck in the past 2 years, and a significant break below 1676/1670 would open the potential for a further drop to 1569. This move would also reiterate the Dollar’s strength, which continues to push towards the long-term 120 target. Mortgage rates were also grabbing eyes today, as the US 30-year fixed mortgage, chugs its way to the next technical target at 6.5%. Homebuilders were unsurprisingly pressured. The indices were indecisive for most of the day before taking a turn lower in the afternoon. Energy and tech dragged as crude dipped after news yesterday that the US had to refill its strategic reserves. Tech was hurt by the move higher in yields, and mega names continue to populate our 12-month relative low list. Microsoft is on a relative support, as is the SOX. Google, Nvidia, and Meta are three more to monitor. Tech was also dragged lower by Adobe, which was today punished for news of a $20B acquisition of Figma, closing down 16.89%. Banks outperformed as yields moved higher, although the BKX’s move higher hid the fact that it continues to trade in the same tight range it has been this month. Tomorrow brings the latest University of Michigan data, and after admittedly “meh” retail data this morning & a hot CPI print, we will see what consumers are really feeling. Hopefully will be a good end to the week, although with triple witching tomorrow, things could get volatile.

A positive end to the week was a refreshing change, but would have been better if indices weren’t still firmly range bound. S&P futures are at least in the upper end of the range, with 4200 on the S&P futures as the next resistance, though we’re also still keeping one eye on the 3900 support. Noteworthy that the move into risk assets hasn’t just been in tech, a laggard this month (energy has been the month’s worst performer). In fact, the US tech ETF made a 12-month relative low, while the Consumer Staples/Financials ETFs made 3m relative highs. Possibly a sign of where money is being put to work. Separately, the formerly unstoppable DXY suffered its third straight day of losses, while the AUD enjoyed its 4th best up day in 2 years. And Gold stayed towards the lower part of the range from the past 2 years — $1760, a key USD resistance. Today was light on the economic data front, but heavy in terms of Fed Speak. The members were not mincing words ahead of their unofficial quiet period which starts this weekend. Bullard reiterated his hawkishness early on and was followed in kind by Wallers and George. Nothing new was said per se, just reinforcement of their commitment to a “significant” hike in two weeks, which historically means 50-75bps. The good news was the “not new” comments were mainly ignored by the markets, and allowed for a nice little rally to end the week. Like the uber bearish BaML Fund Manager July survey that actually set the mid-summer low for the SPX, Lipper data showed another $12bn of outflows last week, following the previous week’s $10b. Though there has been no real change to investor bearishness, major indexes find themselves trading again ABOVE their 50 and 100 day ma’s. While next week will be quiet in terms of The Fed, there will be plenty to monitor — notably CPI Tuesday and PPI Wednesday. Peeking at the monthly price of Crude on Bloomberg for August has it at $91.48, vs July’s 99.38. And using our crude analysis (pun intended), would suggest another drop for the CPI (bbg ests m/m -0.1%). That said, a better than expected result could keep this equity rally going (and Dollar weakening), right into the Triple Witch Friday, and as dealers are forced to adjust their deltas. Say hello to the pain trade…

New day, new sentiment. The same themes we’ve been tired of hearing about seemed ready to weigh on investors again this morning. A grind lower was expected, but we got just the opposite – markets bounced off their short-term support levels. S&P futures moved in the green after testing and holding the 3903/3900 August low, although as long as we remain below 4018/4022, the trend remains to the downside. One of today’s most notable events is the dip in oil. December 2022 Brent futures dipped below the support at $90, and the next technical stop is the March low at $85. Energy is unsurprisingly the underperformer, with all other sectors in the green. Utilities are the day’s outperformer as yields came off, and the energy crisis (as mentioned above) cracks on. Today also brought the Fed’s Beige Book. The report showed that growth had slowed, and consumer spending was steady. There was notable weakness in housing, and price gains appeared to be moderating. Today’s move higher likely aided by the dovish implications. The probability of a 75bp hike at the next Fed meeting is down to 76% from 80% this morning – the Fed has communicated how aggressive it needs to be, and nothing can change expectations in the short term. Then, there was the dollar, which has been an absolute steamroller. The DXY remains firm, hitting a 20-year high today, but it took a breather today before the next stop at 120. Finally, as tomorrow brings Chair Powell, keep an eye on the VIX, which (for now) remains well below the next stop of 30/30.22 on the way to 35.0. It would be surprising if his narrative were different, but the market may need a small reminder of his plans after today…

With the markets having anticipated NFPs all week, there was sure to be some disappointment. But the number was as affable as possible, and little was changed with the market having already priced in a hawkish Fed rhetoric. That’s not to say the data was clearcut – the unemployment rate increased, average hourly wages were below expectations, and the labor force participation rate increased. The cooler numbers may have renewed some hope for a soft landing, but on the Friday before a long weekend, there is bound to be outsized reaction to headlines. We continue to watch for new direction from the range-bound S&P Futures (3900/4100), whose support level was upheld again today. 10-year yields also remain stuck, as they declined off the top end of their 2.5% – 3.5% range, and the dollar weakened, providing commodities with a bit of a boost. This wasn’t enough to break larger macro trends though – Zinc had its worst week in nearly a decade, as Chinese lockdowns affected demand. Keep an eye on Gold – a break of the support level could have huge implications for currencies, and going through 1676/1670 would next target 1366. In terms of sectors Energy and Materials outperformed, the latter after a 20% spike in nitrogen fertilizer (UAN) this week. Despite all the commotion around conflicting data, investors are still pricing in a 56% chance of a 75bp hike (although this is down from 72% pre-NFP). Next week brings further realization that September is historically one of the worst performing months, as well as the Fed’s last opportunity to speak ahead of their blackout period (Sep 10-22). Do rest up…

The negative trend continues. Early on it seemed like markets were still making up their mind on where to go, and then the new & improved ADP numbers hit. Less new workers were added this month than expected, indicating the economy may not be as healthy as JOLTS yesterday implied (and continuing the trend of contrasting economic data). It’s seeming more and more likely that a recession may be on the horizon – our team is seeing an increasing number of data points that indicate so. The 2/10yr curve has been inverted since early June (similar circumstances have preceded the past 5 recessions), the Leading Indicators Index is down 5 months in a row (very rare to see this happen outside of recessions, last time it was negative for this many months was the Financial crisis), and the monthly supply of new houses has exceeded 11 months (every time this has exceeded 9 months, a recession has occurred). A grim picture is painted, but at least the month is behind us. Media was the day’s outperformer, closing in the green and led by Meta (META, 3.67%). Meta potentially being rewarded for it’s previous pivot to the metaverse, after Snapchat’s (SNAP, +8.63%) new strategic plan also named it as a priority. This new plan helping overshadow the pain of the 20% cut to Snap’s workforce. These moves helping tech hang on better than the broader market, but with value and growth neck in neck, today’s sell-off wasn’t overly selective.10 year yields moved higher, although as mentioned above, the 2/10 remains inverted. As we start what is seasonally the second worst month of the year, it’s important to keep hopes up. We are 3 weeks out from the next Fed meeting (now 69% chance of a 75bp hike), and Friday beings NFPs. Anything can happen!

Stocks have successfully remained optimistic as investors digest hawkish comments from Fed officials and await further clues from JP in Jackson Hole tomorrow. Today’s data/headlines/quotes were all taken in stride, but further economic data this morning added some inconsistencies into the mix. GDP declined to 0.6% vse 0.7%, while Gross Domestic Income climbed 1.4% in Q2. These measures are supposed to be (roughly) equal, but the gap is particularly wide. It’s also worth noting that corporate profits increased at the fastest pace in the year, after falling for 3 months. Although inflation remains front of mind, and the busiest part of earnings season is behind us, there are still a handful of companies reporting.  This morning brought Dollar Tree & Dollar General, both of which saw an increase in thrifty shoppers, as the consumer continues to be crunched. Separately, US-listed Chinese stocks are also back in the news, as Chinese Stimulus & progress on a regulatory hurdle gave the Golden Dragon Index it’s best day since May. As mentioned, contradictions around every corner! The NBER confirmed we’re still not in a recession, but the likelihood of one certainly feels dependent on The Fed’s next few moves. Until then, investors seem happy to wait and see with volumes better, but not robust, and the VIX down another 4.3%. Either way, all eyes will be on Jerome tomorrow, and it will certainly be an interesting end to a week that served as an exercise in futility.