Last week the market held up relatively well to hotter-than-expected CPI and PPI reports and then rallied strongly on better-than-expected retail sales. There was an increased debate that the Fed might go to a full 1% hike when it announces its policy next week, but that was shot down, and the WSJ is reporting this morning that a 0.75% hike is most likely.
Earnings from banks last week were mostly lackluster, but they shook off the concerns and jumped higher on Friday with the broad market. The action Friday was mostly index-driven rather than stock picking-driven, but it helped to elevate the mood quite a bit.
Earnings season picks up steam this week with names like Tesla (TSLA) , IBM (IBM) , and Goldman Sachs (GS) reporting, but the big market moving names do not report until next week.
Also, next week will be the Fed interest rate announcement. A 0.75% hike appears to be set in stone, but the primary focus will be what happens at the next meeting in September. The Fed has no official meeting in August, but there is the Jackson Hole meeting which has been the source of some major policy announcements in the past.
Market players appear anxious to believe that the market has discounted the worst and is ready to find support. There has been increased hope that inflation is peaking, but there is still a vigorous debate over whether the hawkish Fed will push the economy into a recession or not. There are economists that believe that employment and spending will remain strong enough to avoid the issue.
At this point, we are going to debate whether the strength is just another counter-trend move in a bear market or the start of a significant turning point. We don't have enough sufficient information at this point to know, but there appears to be quite a few folks leaning to the downside, and they are now helping to push the market higher as they attempt to reposition and take on more room.
Charts are improving, but there is still a tremendous amount of work to do before we have a healthy market again.
My game plan is to focus on short-term stock picking and to stay skeptical of the idea that a major market low has formed.
