D&D Note (6.29.2022) ~ Stocks Struggle for Direction Swinging From Gains to Losses Throughout the Day ~ #stockmarket

D&D Note (6.29.2022) ~ Stocks Struggle for Direction Swinging From Gains to Losses Throughout the Day ~

Stocks struggled for direction today with the S&P 500 hovering around the flatline drifting slightly up and down every hour throughout the day. This as the S&P 500 is near key support.

The overall market is set to close out the worst first half of the year since 1970.

Wells Fargo senior equity analyst Chris Harvey said today, “We expect significant volatility this summer, with ‘face-ripping‘ short-covering rallies followed by economically-inspired market slumps. While a much anticipated market ‘washout‘ could catalyze a more sustained move higher, we think the market will not sustain a rally until it believes the FED will toggle from a 50-75bp tightening to a more mundane 25bp increase.”

D&D share the same thoughts on the market and see the FED hiking 75bp in July and then the pivot happening at the September meeting when they’ll have had a few months of declining inflation data and only do a 25bp hike and possibly signal they are done hiking for the year.

The anticipated capitulation moment D&D sees as the upcoming revision down of earnings multiples. While they don’t need to be drastically revised down there does need to be some more reduction in estimates.

NASDAQ 100 earnings peaked in February and are beginning to rollover with Analysts finally now starting to cut earnings estimates, and these revisions picked up steam in a big way this week.

Downgrades now outpace upgrades with every 6 upgrades there are 10 downgrades and the average earnings estimates are now down to low levels usually associated with a bottom of earnings revisions. While it might seem like the overall S&P 500 still has elevated earnings its actually the Energy sector that is lifting the aggregate index. In the last 15 years the only two times earnings estimates where below these current levels was 2008 and 2020. We’ll likely see further earnings reductions to get close to those low levels seen in 2008 and 2020.

Supreme Court justice Stephen Breyer will retire Thursday and be replaced by Ketanji Brown Jackson.

The Port of Oakland is extremely congested and is reducing its landlord free dwell time for import containers from 7 to 4 days before tariffs are applied. By increasing the rate higher that should encourage cargo operators to move the cargo faster.

Sweden and Finland are a step closer to joining NATO after Turkey lifted its veto. The breakthrough came after a trilateral agreement between the three countries on lifting arms embargoes previously imposed on Turkey and toughening laws against Kurdish militants.

Stock Specific News:

Three Arrows crypto hedge fund goes into liquidation due to the crypto winter.

US FCC commissioner wants Apple and Google to remove TikTok from their app stores citing reports the Chinese government has full access to all the US data derived from the app.

Snap announces subscription plan called Snapchat+ for $3.99 a month. The Plus plan offers pre-release, experimental, and exclusive features like pinning your close friend as BFF and customizing the app’s icon.

Bed Bath & Beyond plunged 21% after missing revenue estimates and announcing they are replacing CEO Mark Tritton.

Carnival fell 14% after Morgan Stanley cut price target in half and said potentially could go to zero given the companies high debt levels.

Upstart dropped 10% after Morgan Stanley downgraded to underweight citing rising interest rates hurting growth trajectory.

Bath & Body Works fell 8% after JPMorgan downgraded to neutral and lowered second quarter and full-year earnings estimates.

Tesla was down 4% after a Wall Street Journal report said the company is closing its San Mateo, California office and laying off 200 workers.

McDonald’s rose after an upgrade to overweight by Atlantic Equities citing the company will hold out as consumer spending slows.

Goldman Sachs gained today after Bank of America upgraded to buy citing the bank will thrive in an economic slowdown.

Closing Markets (as of 1:15pm PST)

DOW up 0.27%

S&P 500 down -0.07% (3,818.83)

NASDAQ down -0.03%

VIX down -0.95% to 28.09

2 Year Note down -5.59bp to 3.05%

10 Year Note down -8.06bp to 3.09%

Oil down -2.255% to $109.24 a barrel.

Gold down -0.049% to $1820.30 an ounce.

Bitcoin up 0.48% to $20,317.93

Ethereum down -3.48% to $1,116.38

~ Dave James / Principal Trader and Market Strategist