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July 9 2022 Option Professor Observations & Opinions
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This Week the stock market had some gains with SPX up1.94%, the Nasdaq up 4.6% and its best run in quite awhile. We got the Jobs Report but there seems to be an almost desperate need to try to read bad things into where there is none. For instance: earnings were down a shade and many suggested this was the big turn….for heavens sake we still have 11+ MILION Job Openings!! The Fed is DEFINITELY going 75 basis points in a few weeks and the CPI next week should still be elevated with whispers of a 9 handle! The Fed is still WAY behind the market rates as the 2 yr Treasury went UP 27 basis points this week! The recession may be delayed BUT if everyone’s earning and revolving credit is accelerating (low & middle incomes)….How can the Fed get inflation to their targets. They want DEMAND to decline and truth be known they probably wants stocks & shelter to drop as well as in the 1980’s the Debt to GDP ratio was 30% and now it is way OVER 100! Substantially higher rates would drive debt servicing to crippling levels! They need help with Gasoline (only 3.9% of CPI), Food, and the Index of Inflation Expectations ( comes out quarterly out this Friday) to break to the downside. With the sad news of Abe’s assassination in Japan; some compare the run up we saw here in the USA (SPX 4800) to Japan’s run in 1990 where it was we saw it followed by slow growth (30 years to get back near the highs)…debt explodes & Govt prints/buys own debt with explosion in money supply..let’s hope not! We never saw more premature talk of a Fed pivot…this is NOT 2008 or 2020..we got huge inflation and everyone’s got a job with 11 million more to spare…the Fed is hiking until sustained evidence of lower inflation and lower consumer demand…period!
EARNINGS kick off next week wit JPM, C, WFC, UNH DAL, PEP getting us started. We will see if revenues are up due to interest revenue (banks) and higher pass throughs (UNH DAL) and we will see if margins have been pinched by higher costs and if any guidance is given. The health care sector did see 3 stocks hit new highs in Cigna, Humana and LLY. Q2 expected to see 4.1% average earnings growth rate and 10.1% average sales growth (and the Fed is going to pivot soon??). Q3 expected 10.5% earning growth and Q4 9.7% earnings growth so full year anticipated at 10.2% earnings growth…if true…Fed Hikes++++
The first half of the year was the WORST for stocks in 50+ years! we got Inflation, War, Treasury Yields Spike, Economic Slowdown. Will there be a light at the end of the tunnel and a 2nd half BULL RUN? We are seeing some signs of slowdown (Grains, Oil- Nat Gas, Lumber Industrial Metals all big sell offs) housing & rents stabilizing or fading a little bit AND history tells us AFTER a 15%+drop in a Quarter SPX has been UP 6.2% in the next quarter, UP 15.5% in the next 6 months, and UP 26% in the next year! These are Lovely Statistics based on past performance which is NOT indicative of future results. We will monitor prices and follow them where they lead. We TOLD READERS in our ALERTS that SPX had to stay ABOVE 3720-3740 ( our RISING long term averages) which it did BUT we need CLOSES ABOVE SPX 3925-3995 to keep it going. Our 12 SMA is pointing DOWN at SPX 4344 other resistance is at 4000-4200-4400 areas. The FED could pivot IF STRONG EVIDENCE slowing consumption, investment demand, labor turnover, vacancies and other factors ACROSS THE BOARD but for now no change in Fed plans a RATES are too low, inflation risk is persistent, and a soft landing still seems to be a long shot. Soft Landing? Very Complicated
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