D&D Note (6.8.2022) ~ Markets Fall 1% on Fears of Economic Slowdown ~
The stock market dropped today with investors factoring possibilities of an economic slowdown in the midst of rising interest rates.
The Atlanta FED GDPNow trackers shows a growth rate of 0.9% for the second quarter in the US down from 1.3% last week.
Mortgage demand falls to lowest in 22 years with 30-year fixed-mortgages increasing to 5.40%.
According to UBS’s Art Cashin the S&P 500 is near key levels that could create a big move in either direction with Fridays CPI report being the catalyst.
Interactive Brokers’ Thomas Petrify is taking the Bearish side near-term seeing the stock market falling 15% from current levels.
D&D sees a 300point move in either direction on the S&P 500 as we are at the middle of the current trading range. To play this unknown coin flip we maintain a large cash holding and have been selectively buying stocks that we see being out-performers in the near-term and 1-year timeframe, as well as, that have less downside in a downswing.
In the next two months D&D thinks we will continue to see “chop” in the market with bounces and selloffs in a trading range of 3800 to 4400 on the S&P 500.
In the back half of the year we do think inflation will abate and markets can rally with our year end target of 4700 on the S&P 500 (and we think the high was put in on the first trading day of the year).
Our Bullish S&P 500 1-year target is 5000 (May 31st 2023).
In the second half of 2023 we become Bearish with high probability of recession especially after the numerous bond yield curve inversions we saw earlier in the year.
Ukraine’s President Volodymyr Zelenskyy urges foreign companies to move out of Russia and relocate in Ukraine.
The state of Michigan will now become the 14th state to mandate personal finance education.
Stock Specific News:
Microsoft scales down their Russia operations affecting 400 employees.
Robinhood traded lower -3.90% today on the back of comments from SEC taking aim at payment for order flow.
Tobacco company Altria Group is downgraded by Morgan Stanley sighting inflation causing less demand for cigarettes, the stock fell -8.37% today.
Meta (Facebook) is officially changing its ticker symbol from FB to META starting tomorrow.
D&D added today to our positions in Palo Alto Networks, Lockheed Martin, Devon Energy, and Rivian. Our Current Holdings listed on this site have been updated as of todays market close.
We see Energy remaining elevated over the summer, CyberSecurity as a strong sub-sector of Tech going forward, Defense Contractors having technical support with the war in Ukraine and tensions in the South China Sea, and High Beta Tech rallying off oversold technicals.
Market Knowledge Tip:
Here are some very basic markets terms to understand.
- Animal Spirits / you’re individual feeling of being positive or negative
- Bullish / is feeling positive
- Bearish / is feeling negative
- Bull Market / periods of time stocks go upwards 10% without technically falling 10%
- Bear Market / periods of time stocks go downwards 10% technically falling 20% from recent Bull Market high
Hitting the exact technical levels of 10% and 20% are not always necessary. We have come to 9.9% and 19.9% often in the history of the market. This happened this year intraday falling 19.9%. But if it’s big, furry, has claws, and growls its a Bear (Market).
In Bull Markets you buy the dips (buy when markets selloff 2-5%).
In Bear Markets you sell the rips (sell when markets rally 2-5%).
This first half(ish) of this year is a Bear Market (typically last 7 months) and get Bear Market Rallies that are caused by short covering creating massive short term pops that then fall back down.
Closing Markets (as of 1:15pm PST)
DOW down -0.81%
S&P 500 down -1.08% (4,115.77)
NASDAQ down -0.73%
VIX UNCH to 24.01
2 Year Note up 4.95bp to 2.78%
10 Year Note up 4.98bp to 3.03%
Oil up 2.672% to $122.60 a barrel.
Gold up 0.162% to $1855.10 an ounce.
Bitcoin down -3.59% to $30,154.82
Ethereum down -3.91% to $1,793.04
~ Dave James / Principal Trader and Market Strategist