Market at a Glance

Market at a Glance - 7/28/2022

By: Christopher Mistal

July 28, 2022

Seasonal: Bearish. August is the worst DJIA, S&P 500, Russell 1000, and Russell 2000 since 1988 and second worst month for NASDAQ. Midterm-year August’s have been mixed with significant losses occurring in 1974, 1990 and 1998. August 2022 is also in the “Weak Spot” of the four-year-cycle.

Fundamental: Recession. The traditional definition of a recession is two consecutive quarters of GDP decline. Q1 was negative and the first estimate of Q2 was also negative. Treasury yields are also partially inverted. Real personal consumption expenditures also decreased in May (June to be released on July 29). Corporate earnings have also been tepid with numerous companies missing expectations. Housing is cooling, supply chain pressures persist, and consumer confidence remains depressed. Employment data has remained firm but could be the final shoe to drop if other data continues to come in weak.

Technical: Nearing Resistance? DJIA, S&P 500 and NASDAQ have all enjoyed fair rallies off of their respective June lows. At those lows, they were all oversold and due for a bounce. All three have reclaimed their 50-day moving average but remain well below their 200-day moving averages. Also standing in their way are the early June highs around: DJIA 33250, S&P 500 4180 and NASDAQ 12320. A decisive move above these levels could put respective 200-day moving averages in play. Failure could lead to an eventual retest of the June lows.

Monetary: 2.25 – 2.50%. Energy and other commodity prices have eased lately, but headline CPI and PPI have yet to confirm with lower readings that could suggest a change in trend. Nonetheless, the Fed did raise rates by 0.75% this month and boldly signaled that they will likely slow the pace of hikes as soon as their next meeting in September. As a result of a less hawkish Fed, the market has largely shrugged off this month’s rate increase thus far. QT (quantitative tightening), currently around $47.5 billion per month is scheduled to double to $95 billion on September 1.

Psychological: Improving. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 38.9%. Correction advisors are at 27.8% while Bearish advisors numbered 33.3% as of their July 27 release. Bears peaked at 44.1% in mid-June and have been trending lower as the market has climbed higher. Current levels of bulls, bears and correction advisors are essentially neutral. Where the market goes next is likely to dictate the overall direction in sentiment.