Markets have a way of figuring out what everyone is doing to make money and flipping the script.
Last week was a microcosm of the entire last month in the markets. We had four straight days of selling, riding on the back of yet another overly hot inflation reading (CPI 9.1%). Then on Friday the market made back all of its losses.
Maybe the market is done with inflation and will climb that wall of worry as long as there’s no big shocks or disruptions. And while it may not feel like it, the S&P 500 (SPX) bottomed out in mid June and we’ve been consolidating since:
This week will be a big test for the S&P which is looking to rally. Critical levels for me are 4000 on the SPX which should offer some resistance. If we clear that then the next stop should be 4155 around the end of July or early August. But my lean is bullish in the interim.
With inflation acting as a milder bearish catalyst, my take is the market will shift to focus on indications of a recession. Real evidence of a real slowdown could be a big problem for markets, which is why we have to watch this week’s data closely.
This Week’s Economic Numbers that Matter
7/19 8:30 Housing Starts- EXPECTED JUNE 1580K: Housing is an area that’s been at the center of U.S inflation with rent rising at an almost unprecedented pace. While we need rents to cool down, a major miss in new house construction would show that a recession is truly imminent and could spook investors who see housing prices as the last line of defense. Watch the S&P Homebuilders ETF (XHB)’s reaction to the data. The sector has been beat up A LOT this year (who hasn’t!), and a moderate to good read should lead to a rip higher in XHB
Some Earnings We Need to Pay Attention Too
Netflix (NFLX): Shares kicked off a massive leg down in FANG names last quarter after posting a shocking decrease in customers world wide. The stock has absorbed a 68% decline YTD, which tells me most of the worst expectations could already be priced in. The key metric is subscriber metrics. Wall Street expects a 1.72 million drop in subscribers in the quarter, less than that and we should see the stock trade back up to the 100-day moving average near $250 a share.
Remember to keep an eye out on your inbox this Friday for a recap of the week and to see how it all played out!