The View from 5th Avenue – 16 August 2022

The dog days of summer are here and that may be helping keep US markets elevated. Volumes on the S&P 500 were down 14% versus the 20 day, and overall volumes were only helped by a surge in interest in the meme stocks (Bed Bath Beyond up another 29% today). But before traders pass the blame, the repositioning that started last month is continuing to find its way into stocks. In July, the BofA Fund Manager survey showed cash levels at their highest levels since 2001, and equity positioning at 2008 levels, and today’s survey showed a slight decrease to those fears (“apocalyptically” was the word to describe July). While managers are still bearish (58% see a global recession), they cannot sit on cash if the S&P starts to move higher (it is +11.4% since July 15th) and therefore even nibbles are helping support the indexes. Retailers were the center of attention today with earnings from Home Depot (HD +4.1%) and Walmart (WMT +5.1%) helping spur a late morning rally for the S&P (10 of the top 20 performers were in the Retail sector). But as the index tested its 200-day moving average (4326) for the first time since late-April, the S&P could not manage to punch through, still closing above 4300 however. The consumer theme will continue tomorrow with July Retail Sales expected the show a m/m increase of 0.1%. Plus, investors will see earnings from Lowe’s, Target and TJX. Perhaps the biggest datapoint to monitor will be the Fed Minutes at 2pm. Since the Fed raised rates 75bps last month, estimates have been oscillating between 50 and 75bps for September, and traders will be keyed into any insight to direction, especially after the CPI last week. So far, Fed heads have maintained their rate hike communication discipline, even if the Street is looking for a transition to cuts next year. A realization that higher for longer is the reality could impact the recent momentum in stocks, but maybe the next downdraft could be met with sponsorship by the “apocalyptic” crowd.