On Friday, June 24, the University of Michigan's revised Consumer Sentiment survey hit the tape at a headline print of 50, down from 59.1 in May, which was awful at the time. This was the worst, or lowest headline number reported in the history of the series.
A week later the Conference Board went to the tape with the results of their Consumer Confidence survey for June. That headline number landed at 98.7, not the lowest number in the history of that series, but certainly the ugliest print in almost a year and a half, with the expectations portion of the survey far worse than the results for present conditions.
Earlier this week, in response to a disappointing June Housing Starts report, the Atlanta Fed revised their GDPNow model for the second quarter to -1.6% (q/q SAAR) from -1.5% after tweaking lower the contribution from real residential investment. A day later, June Existing Home Sales would miss the mark by a wide margin. Existing Home Sales, multiplier or not, as they may be (certainly are), are not considered a major contributor to GDP.
In all, the housing numbers of late, as well as homebuilder sentiment have been weak. Yet, the median sales price for existing homes hit an all-time high of 416K. A slow market that still produces elevated pricing. Can anything be more frustrating in terms of lower-to middle-income or twenty-something to thirty-something household formation?
Atlanta will go to the tape with their final snapshot of the second quarter next Wednesday, July 27. The Bureau of Economic Analysis will dish out its first (official) estimate for the quarter the next (a week from today) morning.
Is a second consecutive quarter of contraction in economic activity in store for the U.S.? It would appear likely. A finish on either side of flat growth is probable. Something this >< close to technical (actual) recession would be looked at as positive.
It Gets Worse
Just scanning some headlines over the past twenty-four hours:
-- Alphabet's ( GOOGL) Google places a complete pause on hiring for two weeks after last week announcing a slowdown in hiring to last for the balance of 2022.
-- Microsoft ( MSFT) reverses plans to hire more people for the Azure and security software businesses. Earlier this month, Microsoft had announced that the firm will be reducing the size of its workforce.
-- Ford Motor ( F) is preparing as many as 8K job cuts in coming weeks in an attempt to boost profits to fund the firm's evolution out of ICE vehicles and into EVs.
-- Lyft ( LYFT) announces 60 layoffs and a reorganization of its global operations, shuttering some regions.
I could go on and on with more headlines concerning job cuts or planned hiring slowdowns if I really made an effort to do so. Many high-profile corporations in the tech space have made such announcements this summer.
Two weeks ago, staffing company Insight Global published the results of a survey (of largely white collar workers) that illustrated the fragile mindset of the U.S. worker at this time that has not been captured by the JOLTs job openings and job quits data that prints with an almost two-month lag. The survey showed that 54% of U.S. workers would willingly take a pay cut (in this inflationary environment) in order to keep their jobs. Strong labor market? Doesn't sound like it.
From that survey, 78% of U.S. workers were worried about losing their job in a recession, while 87% of managers felt that they would likely have to lay off workers in that event. Still drawing from that survey, 56% of American workers say that they are not prepared for and don't know how to prepare for a recession.
Too many pundits (economists/strategists) have opined on the depth of any coming/current economic contraction. Being an older fellow who has done this a few times, who has lost jobs due to economic slowdowns, I chuckle an unhappy chuckle. Especially when the pundit appears or sounds too inexperienced to remember how the concern and then the actual fear spreads.
Large businesses, small businesses and households will all change or delay spending plans. They will not invest in the business without much more careful deliberation. Hiring will be slow and thoughtful. Wage increases will become the stuff of fantasy. Long-term goals will hit the back-burner, while the focus moves to the short to medium-term.
Does it have to happen this way? No. It doesn't have to happen in any way at all. What happens is that Ford Motor lays off Worker A in Michigan. Worker A's friend, Worker B who works for General Motors ( GM) , tells his or her spouse about Worker A. Worker B's family decides not to go on vacation this year and not to ask for a raise "right now." Meanwhile, Managers C & D, who might work for Honda in North Carolina, hear about what's going on in Michigan, and decide to find ways to show how much money that their units can save. They cut discretionary spending on labor and equipment, or just plain old team-building.
It spreads. Worker A decides to take a job for less money as there are bills that need to be serviced. Worker B puts off redoing the kitchen cabinets. Managers C & D decide that the monthly recognition for solid work in the ranks can go away quietly, and that maybe there won't be a family outing that carves out what might have been spent on catering and children's entertainment.
Bottom line. Economics is if anything, the quantifiable measure of human response to conditions of surplus and scarcity, both natural and artificially created through policy. Human response is by nature, emotional, and can be inconsistent. This is why economics is art and not science. In science, the same experiment under the same conditions will produce the same outcome. Every time. No variance, unless the inputs change. In economics, no such guarantee can be made. Humans can react differently at different times to the same set of inputs. The same humans can react differently.
Shallow? Mild? Get on your knees and pray that these neophytes never have to find out that such calls reek of arrogance and betray a lack of depth in understanding and awareness.
The Bright Side
Equity markets continued to do well on Wednesday. Of all the minor, mid-level and major equity indexes on my screen, only the VIX, which isn't an equity index, and the Dow Utilities shaded red for the day. Once again, the Philadelphia Semiconductor Index (+2.49%) led the league. This index is now up 20.4% from its July 5 low. Can an index be in a bull market, if it's up 20% in about two weeks, but still down 27% for the year? Probably not. Thank you, legislators for supporting and stringing out the CHIPS Act so that the positive market impact lasts for a while. Party on.
Elsewhere, excluding the Dow Industrials, as it really is inconsequential in terms of the flow of capital, the Russell 2000, S&P 600, Nasdaq Composite and Nasdaq 100 all gained anywhere from 1.42% to 1.59% for the Wednesday session. The S&P 500 was the laggard at +0.59%. For the third day in a row, when looking at the daily performance tables for the 11 S&P sector-select SPDR ETFs, one quickly sees that places one through seven were reserved for growth and cyclicals on Wednesday, and places eighth through 11 housed the more "defensive" sectors. Fittingly enough, seven sectors shaded green for Wednesday, led by Communication Services ( XLC) , and four sectors closed in the red, with Utilities ( XLU) bringing up the rear.
Winners beat losers by 2 to 1 at the NYSE and by 9 to 4 at the Nasdaq Market Site. Advancing volume took a 62.4% share of composite NYSE-listed trade and an 80.3% share of that metric for Nasdaq listings. Aggregate trading volume increased again day over day for NYSE listings, Nasdaq listings, S&P 500 constituents and Nasdaq Composite constituents. In fact, aggregate trading volume for the Nasdaq Composite has exceeded the 50-day trading volume simple moving average for that index for each of the past two sessions.
Why is that? Simple. The index along with most other equity indexes took back their 50-day SMAs on Tuesday, and the portfolio managers who missed the move have piled in over the past two days. It has become quite apparent that though a number of strategists see at least one more run for the bottom, enough portfolio managers (probably supported by their risk managers) are acting out of a fear that they missed the very tradeable mid-June bottom and may have been under-invested over the past month. On that note, at least for now, leadership, as we have discussed, has changed.
You've seen these charts over the past few days. Look again. The case for a retest of and potential support at the 50-day simple moving average (SMA) grows for our major equity indexes.
The S&P 500 (see above) has built upon that 50-day line, but is still much too close to having to experience a retest to get comfortable. However, the index does appear to be testing the upper trendline of our Pitchfork.
Now, here, we see that the Nasdaq Composite (see above) has done a better job of building some space between the last sale and the 50-day line. This index also has a little more space in between here and the Pitchfork's upper trendline, which could provide resistance.
Where does the market go from here? Let's check in on the most widely held stock in our universe. That would be Apple ( AAPL) .
On Wednesday, Morgan Stanley's five-star rated (by TipRanks) super-star analyst Katy Huberty appeared to knock Apple. She set projections for FQ3 EPS of $1.10 on revenue of $80.6B. (Apple reports in a week.) Consensus view is currently for EPS of $1.16 on revenue of $82.5B (within ranges of $1.07 to $1.31 and $79.25B to $88.4B).
Huberty took her price target for AAPL down to $180 from $185, but maintained her "overweight" rating on the shares. In her commentary, Huberty mentions that "Apple remains a best of breed consumer electronics company able to invest through cycles." This probably confirms for me that Apple is not very likely to grow sales this quarter. The year-over-year comp for FQ3 2021 is $81.4B. I think the focus has to be more on margin across the service and consumer products divisions. Then it will be on to where CEO Tim Cook sees the all-important holiday season and beyond.
A less robust quarter for Apple is not a new idea. One would think that such a quarter might be somewhat priced in. Yet, look at this:
Instead of pricing in something awful, AAPL has rallied nicely. The stock has formed a "double-bottom" reversal with a $152 pivot. This stock, almost by itself, is closer to its 200-day SMA than it is to its 50-day SMA. That's potentially HUGE.
Just look at the strength visible in the daily Moving Average Convergence Divergence (MACD) and the Full Stochastics Oscillator. Yet, Relative Strength is solid, but certainly not yet in a technically overbought condition.
From a technical perspective, Apple is in very good shape. Leadership? look no further. Apple is leading markets away from the 50 and on toward the 200. I am long this name. My price target is $182, which does not differentiate me at all. It is, however, in my opinion, realistic.
What can possibly go wrong? At least we don't have to worry about the Fed or Q2 GDP next week. Oh wait...
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly):Expecting 240K, Last 244K.
08:30 - Continuing Claims (Weekly):Last 1.331M.
08:30 - Philadelphia Fed Manufacturing Index (July):Expecting -1.3, Last -3.3.
If one looks hard enough there are still some reasonable values to be had.
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