Stocks are primarily unchanged or trading slightly higher as pressures from rising food and energy prices persist.
As I reiterate, among the war's immediate external financial implications are disruptions in global supply lines for cereals, fertilizers, metals and energy, all of which are passed on to global consumers in the form of quickly rising food and gas prices. The consumer expectations fell to a 9-year low according to the Conference Board Expectations Index released yesterday. It showed a sharp decrease in June.
Expectations have already dropped significantly, implying slower growth in the second half of 2022 and a greater chance of recession by the end of the year. However, with Personal Consumption Expenditure numbers (PCE) out in the morning, what is the market is trying to tell us?
The long bonds, or 20+ year treasury bonds, rallied, with yields slightly declining. That's an interesting event considering the calls for recession, the persistent inflation and Powell stating that the economy is in great shape. Also interesting ahead of the PCE is that oil, metals, and some foods declined in price. However, the PCE number excludes food and energy.
It appears that if you combine Powell's optimism, the prevailing thought of peak inflation and the performance of the long bonds, the market is saying that the PCE number will be regarded as less inflationary, but also as an indication that the consumer is slowing down. If that turns out to be the case, we expect the market to think Powell will act slower on rate raising in July. That, in turn, could bring some rally to the indices, which right now are teetering on support.
Things I am Watching
Grains and metals are deeply oversold. Yields are set to hover around 3%. The SPX levels of support for a near-term tradable bottom.
Retail sector (XRT), the most beat up sector, must close over 60.72 or the 200-WMA for any rally to sustain. Transportation (IYT) is another key; must hold over 212 or its 200-WMA.
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- S&P 500 (SPY): 378-380 support zone.
- Russell 2000 (IWM): Support is 170; needs to clear 174 to stay in the game.
- Dow (DIA): 307 support, needs to clear 315.
- Nasdaq (QQQ): 282.50-283 pivotal and 290 resistance.
- KRE (Regional Banks): 56 the 200-WMA; 60 resistance.
- SMH (Semiconductors): 209-210 needs to clear.
- IYT (Transportation): 211.90 support, with resistance at the 50-DMA of 231.70.
- IBB (Biotechnology): Above the 50-DMA with resistance on weekly chart at 121.15; support at the 50-DMA, 116
- XRT (Retail): 58.95 support to hold and 60.75 the point to clear.
Director of Trading Research and Education