Jul

Weekly market Recap – July 10th

The material in each presentation has been prepared by the respective participant for informational purposes only, and does not, nor does it intend to, provide tax, legal, accounting, or investment advice. This information is of a general nature and does not address the circumstances of any particular individual or entity. You should consult a qualified advisor on your situation to answer specific questions.

The Inverted Yield Curve Stands in the Way of Extreme Bullishness:

Since 1983, a prolonged inverted yield curve of over a year has always spelled a recession in the US.
One must ask, why would now be any different?

Most important news for the market this week:

YoY CPI is expected to drop significantly this month due to last July’s number “disappearing”.
This could create positive news headlines and attract retails traders who believe the worst is over. What this may be doing instead is trading right into a recession.

ISM still pointing to recession risk:

An ISM move below the 50 line signifies a contraction in the economy, a prolonged state below 50 significantly increases the probability of a recession.
Currently we have been below 50 for almost a year.

Who is Adding Jobs and Who IS Not: Leaders and Laggards

US employers added 209,000 new jobs in June, with the nation’s unemployment rate falling to 3.6%.
Meanwhile, average hourly rates also rose 4.4% to $33.58 from $32.18
Black unemployment is going in the wrong direction at 6%, which is continuing to move higher under the current administration.

A closer look at the growth of the job market:

High skilled service industry jobs have been the main engine of growth this past year.
Employers in select industries with worker shortages like healthcare have remained enthusiastic about hiring when they find qualified people.
Layoffs in information and financial activities reported in the ADP report show cyclical sensitivity of select high-skill professions.

ESG funds continue to underperform and see outflows:

Though politics is an issue with ESG funds, performance has been a bigger problem.
ESG ETFS have consistently underperformed the broad markets since the FED began its rate hikes last year.

Since ESG funds also tend to not have energy names in their funds, they have not only underperformed this year, but 2 years ago as well.
This is why the stream of inflows in 2021 rapidly changed course into 2022 and 2023.

Earnings reductions this quarter can spell trouble as valuations near average:

Stocks are at risk of looking pricier, with forward P/E ratios of 12.6, which is near the 17-year European Average.
The 12-month forecasts are potentially too optimistic, so any cuts to EPS would push ratios higher, making stocks expensive relative to past results.
This could push institutions into fixed income alternatives.

Global money supply is dwindling, reflecting bank tightening:

Over the past 3 months, G5 central bank balance sheets have declined $486 billion.
Global M2 has contracted an incredible $1.275 trillion. This drop suggests banks have been tightening their lending standards as a result of balance sheet pressure and rising interest rates.

Europe continues to lag in the inflation fight:

The US seems to be faring better in the inflation fight, as some European central banks were slower to act.
If Europe remains in an inflationary environment despite the US under 4%, we can see recession come to US shores anyway due to our inter-woven relationship.

Indian Markets continue to outperform, particularly mid-caps:

With India enjoying one of the fastest growth rates among major economies, midcap stocks are the best placed to benefit given how closely ties they are to GDP.

With India enjoying one of the fastest growth rates among major economies, midcap stocks are the best placed to benefit given how closely ties they are to GDP.