Again

Again

Last week saw the S&P 500 drop 2.4%. That’s not the end of the world but neither is it great. For better or worse, this week’s blog is going to look pretty similar to what I said at the beginning of last week, as the basic setup is the same. Nonetheless, it’s worth talking about what we’re looking at, this week.

Obviously, we have continued geopolitical trauma going on. While Fed speakers are finally in their quiet period, we do have a heavy slate of earnings, including a lot of megacap tech stocks. In all, 38% of market cap is reporting this week. Optimism had been high for earnings but that hasn’t played out well, so far.

Lastly, we have some major datapoints coming out. On Thursday, Q3 GDP comes out. It’s expected to be pretty hot, at 4.5%, with some expectations of higher numbers. That certainly won’t stop the Fed’s higher-for-longer stance. On Friday, we have PCE Inflation, which is something the Fed focuses on. Inflation has been running hotter, again, and this number isn’t expected to materially change that, with Core PCE hitting 0.3% m/m. Not the end of the world but that would annualize to 3.6%, higher than the desired 2%.

Really, those are just events. What’s really important to focus on is what happens with the dollar and yields. Bulls need to see the dollar and yields back off. If those keep moving up, it’s hard to get too comfortable. While a lot of assets are oversold, crashes happen from oversold conditions. Usually, the market rubber band bounces back but sometimes it snaps.

Right now, on Sunday night, both the dollar and bond yields are headed up. That not the direction bulls want to see, but there’s a lot going on this week and we’ll see where we end up. If the market starts to relax, we can start to invest.