D&D Note (6.30.2022) ~ Markets Finish the Worst First Half to Year Since 1970 ~ #stockmarket

D&D Note (6.30.2022) ~ Markets Finish the Worst First Half to Year Since 1970 ~

Large selling of US stocks came from Europe causing the markets to gap down to open with the S&P 500 down nearly 3% to start the session. As European markets closed the US indices began a claw back from the opening lows.

In the final hour of trading the intra-day rally failed with all major Indices taking a big leg back down into the close.

In what was relatively good news was the Core Personal Consumption Expenditures Prices, which excludes food and energy, rose 4.7% in May around multi-decade highs. That reading was not as bad as expected and allowed the both the 2 Year Yield and 10 Year Yield drop below 3%. Core inflation is the FEDs preferred measurement of Inflation and largely puts a 75bp hike in July firmly on the table.

This Bear Market is still trying to find a bottom and is highly likely to put in at least a new bottom if not The Bottom sometime in July or early August. We’ll have another CPI report, FOMC rate meeting and the start of earnings season. A date many investors are circling on the calendar is July 28th when Apple reports earnings. A gloom outlook from the iPhone maker could be the final straw to break the camels back.

D&D has been revising our second half forecast with new base/bull/bear case for year end targets on the S&P 500:

Base = 4200

Bull = 4400

Bear = 4000

Our Base case is now year end target of 4200 with the market breaking up through 4400 level in first half of 2023. The base case implies the FED not pivoting this year and 125 basis points of additional rate hikes this year.

Our Bull case for year end is now 4400 (revised down from 4700) and is currently where the 200 day moving average is. That would put us near 4800 in first half of 2023. The bull case implies the FED pivoting at the September meeting and 100 basis points of additional rate hikes this year.

Our Bear case is year end target of 4000 which where the current 50 day moving average is. That would put us just breaking through the 4200 level in the first half of 2023. The bear case implies no FED pivot and a December rate hike with 150 basis points of additional rate hikes this year.

Stock Specific News:

FTX closes in on a deal to buy crypto lender BlockFi for $25 million.

Grayscale sues SEC after being denied to turn the largest Bitcoin fund into an ETF.

RH fell -10% after cutting its full-year outlook, this has now worried investors the high end consumer is also getting hit by inflation.

Walgreens Boots Alliance dropped -5% despite beating on earnings due to the company saying profit margins are declining as Covid-19 vaccines demand fades.

Pfizer gained over 2.9% after saying they and BioNTech will provide 105 million does of Covid vaccine in a $3.2 billion deal with the US government.

Xerox Holdings declined after CEO John Visentin died at age 59.

Micron shares fell -6% in post market after reporting weak Q4 guidance and EPS forecast.

Closing Markets (as of 1:15pm PST)

DOW down -0.82%

S&P 500 down -0.88% (3,785.38)

NASDAQ down -1.33%

VIX up 1.53% to 28.59

2 Year Note down -7.91bp to 2.96%

10 Year Note down -7.53bp to 3.01%

Oil down -3.525% to $105.91 a barrel.

Gold down -0.572% to $1807.10 an ounce.

Bitcoin down -7.38% to $18,939.99

Ethereum down -8.83% to $1,021.11

~ Dave James / Principal Trader and Market Strategist