Edition #190
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Investors,
From June 15th through July 5th, yields have fallen dramatically across the maturity spectrum. Typically, I would expect this to produce strong tailwinds for asset prices to rise; however, I’ve been slightly underwhelmed at the performance of risk assets during this time. Returns generally have been positive for the major stock indexes, but not to the extent with which I’d expect. During this period of time, the indexes have produced the following returns:
Dow Jones $DJX: +1.3%
S&P 500 $SPX: +1.8%
Nasdaq-100 $NDX: +2.7%
Russell 2000 $RUT: +1.4%
Since the close on July 5th, we’ve seen yields launch higher amidst slightly encouraging economic data and reignited inflation concerns. In this environment, I’d expect to see asset prices suffer, or face headwinds at the very least. However, we’ve seen the exact opposite. In fact, the indexes have generated roughly the same returns in the past three trading sessions as they did in the 6/15-7/5/22 trading period:
Dow Jones $DJX: +1.2%
S&P 500 $SPX: +1.8%
Nasdaq-100 $NDX: +2.95%
Russell 2000 $RUT: +1.6%
Quite simply, financial markets are betraying their traditional tendencies. We’ve seen the riskiest stocks make the largest gains in this environment, which is signaling an increased demand for risk appetite. As we enter an extremely important week of fundamental economic data, I think we are due for significant volatility in either direction. Specifically, I’m referencing the following economic reports:
June 2022 CPI (Wednesday, 7/13)
June 2022 PPI (Thursday, 7/14)
June 2022 Retail Sales (Friday, 7/15)
Empire State Manufacturing Index (Friday, 7/15)
University of Michigan Consumer Sentiment Index (Friday, 7/15)
On the aggregate, I expect that these data points will clarify if the bond market is correct or if the stock market is correct.
In today’s report, I’ll be analyzing the primary charts that are helping to illustrate these bizarre trends and to discuss the potential implications going forward. As we know, financial markets are forward-looking mechanisms, aggregating the perceptions, opinions, and expectations of global investors. As such, it’s very possible that price action is telling us what to expect about inflation & economic growth going forward.