Equites Friday were initially buoyed by a report that core PCE, the Fed’s preferred measure of underlying inflation slowed to the lowest level in May since March 2021 on a year over year basis. The report also indicated household spending rebounded and income showed solid growth.
Moreover, consumer sentiment declined by less than initially estimated on expectations that inflationary pressures will moderate, according to the June University of Michigan report.
Based on the data, the markets are now projecting almost two rate cuts this year, with a quarter point reduction fully priced in by November.
Led by the mega caps, equities reversed direction mid-day perhaps under the concern that economy might be slowing too much.
JP Morgan sated the S & P 500 will falter about 23% by year end, the result of slowing economy and a downward revision to earnings.
The Bank wrote “there is a clear disconnect in the huge run up of equity valuations and the business cycle…there is a risk that an opposite of the hopeful expectations could play out in coming quarters where growth decelerates, inflation remains firm and long-term rates don’t move sharply lower.”
As noted previously, the narrative is rising about elevated valuations, overbought conditions and underwhelming market breadth, all of which point to potential volatility for the intermediate future.
This holiday shortened week is comprised with a number of top tier indicators that can offer insight into the direction of the economy.
The economic calendar is comprised of the JOLTS Jobs Openings, the ISM Manufacturing and Services Indices, the Trade Gap, Minutes from the recent FOMC meeting and BLS Labor Report for June.
The data might be released into a vacuum given that trading staffs are expected to be thin because of the Fourth of July holiday thus suggesting any statistic that does not meet expectations may be met with outsized response.
Last night the foreign markets were up. London was up 0.30%, Paris up 1.55% and Frankfurt up 0.36%. China was up 0.92%, Japan up 0.12% and Hang Seng up 0.01%.
Futures are flat ahead of a data filled, holiday shortened week with the narrative surrounding last week’s debate rising in intensity. The 10-year is off 3/32 to yield 4.41%.
