After yesterday’s Weibo stats showed exactly how much attention was on Pelosi’s visit to Taiwan, her actual meeting had far less exposure. The tensions lessened, and investors were free to trade with one less concern. Earnings, economics and the Fed’s end game continue to drive the current investment environment. Treasuries focus on a recessionary outcome has led to a rally in yields and future rate cut expectations, and that has fueled a return of interest into the Tech/ Growth area of the market. S&P Growth outperformed Value by 6.9% in July (2% last week alone), and that move continued today by another 153bps. While it is easy to point to the mega-tech team as the leaders, Semis (SOX +2.6%) and Software (+2.5%) also moved. The only sector to close in the red today was Energy (XLE -2.8%). OPEC+ at their ministerial meeting today decided to only increase production by 100k bbl/d in September. But EIA data showed a weekly decline in jet and motor oil (19% and 7.6% respectively), pushing Crude to close below $91 for the first time since the Russian Ukraine invasion.

After markets held up relatively well yesterday, the geopolitical tension seemed a bit much for markets to handle this morning. Pelosi landed in Taiwan safe and sound though, much to the distaste of the Chinese government. She is the highest ranked US official to visit since 1997, and was “warmly” welcomed by military drills. The added tension from these events led to some indecisiveness from traders, who were already contending with plenty of earnings pre-market, along with JOLTS data. Caterpillar (CAT, -5.85%) this morning missed on revenues, noting dented demand across Asia. Surprisingly, Uber (UBER, +18.91%) reported revenues that beat, as ridership apparently defies inflation (it’s not a luxury, it’s a need!). JOLTS came in below estimates for the first time since January, and while the datapoint is still near highs, with weekly jobless claims rising the number is pointing to a slowing labor market. However, the Fed’s Daly, Evans, and Mester today noted that that the Fed’s work is far from over on curbing the high inflation rate. Evans even said 50 or 75bps was reasonable for the September hike, with the current probability pointing to 60% chance of a 50bp hike. Markets rolled over after investors realized that they couldn’t yet look through to next year’s(ish) cuts.

If you felt a small tinge of anxiety when you woke today, we get it. It’s August 1st, which unfortunately means  we’re in the last 1/3 of summer. Given the oppressive heat waves spanning the globe, perhaps that’s not the worst thing. Equities equally hot last month, and so the trepidation could be due to concern this was nothing more than a bear market rally, with stocks surely headed for a measure of mean reversion. Regional Fed President Kashkari attempted to throw a bit of cold water on the hot streak but the day’s meandering had more to do with a directionless summer day than sentiment cooling off. It’s been quite the opposite of late, setting up an ugly scenario were inflation data were to fly in the face of the recent narrative. That being the Fed ready to make a clear pivot. The data we got this morning was net positive even if there were a series of hits and misses. Employment was stronger than expected as was manufacturing but new orders slipped. That said, attention was squarely on ISM prices paid, which took a significant dip lower and further solidified the hope the CPI/PCE figures to come in the next two weeks will stay on message.

Thrilled I finally get to say this: that was the end of the week (and month) we were hoping for –the best month in fact since November 2020. After Apple and Amazon last night with positive numbers, there was only one way for markets to go. While it’s still a bit too early to call the rotation as of late a full trend, a break through of the June highs for indices would put us on high alert (June high for the S&P was 4177.51 vs today’s close of 4130.37). Our charts team is also flagging that MedTech names in the US are picking up, while Financials names are deteriorating. The tidal wave of economic data continued this morning – we had the Fed’s preferred inflation gauge, PCE Deflator, which like the rest of inflation data, came in ever so slightly elevated. The latest University of Michigan Sentiment/Current conditions also hit this morning, and with Sentiment and Current Conditions higher than expected, the market had a green light to keep climbing. It did just that, with the index rising throughout the afternoon. Tech and discretionary names led, both after numbers last night and on slightly better consumer data. This wasn’t a hard and fast rule however, as Intel (INTC, -8.56%) slashed forecasts for the year, and was harshly punished.

When multiple clients tell you this morning they thought it was Friday, you know it’s been a week! Talk about a rude awakening for those with their calendars mixed up. But they can be forgiven for such a mishap, the flurry of activity melding the week’s days into one and we’re not even finished. On the bright side, we’re not in a recession at least. I’m sorry, what now? But Jerome said…in the traditional sense, the -0.9% fits the definition but Powell rejected that notion yesterday. That’s that then. But you could make the argument he’s right, with a number of bellwether companies suggesting in fact we aren’t in the throes of a classic recession. Although don’t tell that to Treasuries, all points along the curve sinking but the early bit more than the back end. Reconciling what’s happening in the bond market (and you know, GDP!) with the fact corporate earnings have remained steadfast has presented another conundrum for equity investors. Now about halfway through the reporting period and profit beats have come in at a historically familiar level i.e. been pretty good.

This week has been busy from every angle for investors, but one of the main expected events was the FOMC. In their battle against inflation, the amount of basis points they were going to hike today has been a daily conversation. Ahead of their quiet period, 75bps seemed the likely outcome (Bostic, Daly and Bullard were in agreement). Without a WSJ article suggesting a change in tactic this week, the Fed raised rates by 75bps, surprising no one. Like the Fed, markets have been monitoring economic data and its recent deterioration, and have rallied this month in anticipation of future rate cuts in 2023 by Powell. This has led Growth to outperform Value by 210bps as of yesterday’s close, and that lead accelerated today to close at 490bps.

Less than 24 hours until the Fed decision, and while investors are waiting with baited breath, the day was far from quiet. With earnings season in full swing, there were a number of results to contend with pre market – Coca-Cola (KO, +1.35%) beat on sales and profits and McDonald’s (MCD, +2.62%) also beat, bringing some optimism to the consumer sector. However, last night Walmart (WMT, -7.63%) pre-announced negatively, as a stark reminder about the inventory issues many still face. GM (GM, -3.4%) beat on revenue and maintained its guidance, but missed on profit estimates – another chip shortage story at play. Energy also remained a key focus, with crude higher on news that Gazprom would cut capacity on the Nord Stream 1 to 20% from Wednesday.

Just when it looked like growth was about to take back the crown, jitters going into big tech earnings this week SNAPped growth’s recent outperformance (see what I did there?). The SGX underperformed SVX by over 1.3% today as a volatile start the week gave investors pause, leaving the S&P slightly higher +13bps and the Nasdaq down -43bps. The weakness was led by Tech and Consumer Discretionary names, with many due to report in the next few days.

Not the end to the week many were hoping for, but things could be worse. Yesterday afternoon may have given some indication things wouldn’t be pretty, with Snapchat (SNAP, -40%) post market reporting crushed sales as advertising spend slumped. Tech’s performance lately has really helped the markets stage the rally, but as negative earnings hit, further outperformance is called into question.

Today was not quiet – the long awaited ECB decision to hike rates for the first time in 11 years was by more than expected, Initial/Continuing Jobless claims were hotter than expected, and it was the busiest earnings day of the season so far. The last point helps explain some of the outperformers – Autos & Pharma/Biotech led today, with Tesla (TSLA, +9.8%) and Danaher (DHR, +9.2%) reporting better than expected numbers.