{"id":19913,"date":"2022-07-15T07:30:27","date_gmt":"2022-07-15T11:30:27","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19913"},"modified":"2022-07-15T07:30:27","modified_gmt":"2022-07-15T11:30:27","slug":"the-market-is-bending-but-not-breaking","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-market-is-bending-but-not-breaking\/","title":{"rendered":"The Market Is Bending, But Not Breaking"},"content":{"rendered":"

This hasn’t been a good week for the market.<\/p>\n

Going one step further, it hasn’t been a good start for the second half of 2022 either, continuing one of the worst years on record.<\/p>\n

However, the last three times the market got off to a similar start, the S&P 500 averaged a 33% rebound in the second half of the year.<\/p>\n

Market optimists are quick to point that out.<\/p>\n

But even though the market hasn’t been able to replicate that so far… a key support level was tested for the fifth time today… and passed with flying colors.<\/p>\n

And that’s despite an onslaught of bad economic news this week.<\/p>\n

It started with the VIX flashing a warning sign on Monday<\/a>…<\/p>\n

Coupled with an overbought Nasdaq on Tuesday<\/a>.<\/p>\n

You see, the market already dropped 2% going into Tuesday. But all eyes were on Wednesday’s Consumer Price Index (CPI) release, which revealed the market still<\/em> has some serious and unresolved issues.<\/p>\n

First, inflation has accelerated… coming in at 9.1% and beating analyst estimates once again.<\/p>\n

But the CPI reports on economic activity for the previous month.<\/p>\n

In this case, June saw crude oil fall 5.5%, natural gas 31%, and the CRB Commodity Index 5%.<\/p>\n

Yet, the CPI hasn’t picked up the fallout in commodity prices (the next release will be on August 10).<\/p>\n

Since the market is forward-looking, the drop in commodity prices should be a good thing. It means inflation will subside.<\/p>\n

Except the S&P 500 dropped 2.3% in less than two minutes on the news.<\/p>\n

That’s because of two things…<\/p>\n

    \n
  1. \n

    With the CPI report, all hope for a rate hike less than 75-basis points in July is gone. In fact, 100-basis points is now in play.<\/p>\n<\/li>\n

  2. \n

    According to the Fed Fund Swaps market, the market thinks the next time the Fed will cut<\/em> rates will be sometime in the summer of 2023.<\/p>\n<\/li>\n<\/ol>\n

    But more importantly, the contribution to inflation is increasingly becoming more than just commodity prices.<\/p>\n

    Take a look at the chart showing the monthly contribution to inflation from four broad categories – energy, food, goods, and services…<\/p>\n

    \"Chart\"<\/div>\n

    I separated energy (black lines) from the other categories (orange lines) to show that while the narrative is dominated by energy right now… the trend is growing elsewhere.<\/p>\n

    For example, the cost of shelter rose at the fastest pace in 30 years, contributing to almost half of the total month-over-month increase in inflation.<\/p>\n

    So, even though energy is cooling off, inflation is still rising.<\/p>\n

    When it comes to inflation… if it’s not one thing, it’s another.<\/p>\n\n\n\n
    \n

    Free Trading Resources<\/strong><\/p>\n

    Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Any notion that the Fed will bail out the market this year by slowing down the pace of rate hikes – or even cutting rates if the economy gets worse – is becoming moot.<\/p>\n

    The only tool they have to fight inflation is rate hikes, and they’ll use it until prices fall – come what may.<\/p>\n

    Now all this seems very bearish… but the market hasn’t been able to break the S&P 500’s 3750 support level I highlighted in my essay from June 28<\/a>.<\/p>\n

    For reference, here’s that chart again…<\/p>\n

    \"Chart\"<\/div>\n

    And that’s with today’s very sobering earnings release from JPMorgan Chase… which served up a lot of red meat to the bears who say analysts have overstated earnings.<\/p>\n

    This is why the market’s price-to-earnings (P\/E) multiple looks so attractive.<\/p>\n

    If this trend in underperforming earnings continues in other sectors, what seemed like a reasonable P\/E multiple for the market will turn out to be just a mirage.<\/p>\n

    But the market is<\/em> forward-looking… and holding support is evidence that a lot of negativity has already been priced in.<\/p>\n

    Regards,<\/p>\n

    Eric Shamilov
    Analyst, Market Minute<\/em><\/p>\n

    <\/p>\n

    Reader Mailbag<\/strong><\/h2>\n

    What are your thoughts on where inflation will be in next month\u2019s CPI report?<\/p>\n

    Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

    <\/p>\n","protected":false},"excerpt":{"rendered":"

    Even though energy is cooling off, inflation is still rising…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[13],"newsletter-type":[],"ticker":[],"class_list":["post-19913","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-eric-shamilov"],"acf":[],"ai_tts_audio_outdated":false,"ai_tts_legacy_post":false,"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19913","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19913"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19913\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19913"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19913"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19913"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19913"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19913"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19913"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19913"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}