Happy Friday, friends! It's been quite an intense trading week, hasn't it? I hope it's been a good one for you and that you're ready for a relaxing weekend ahead. We all need time to de-stress from the screens!
It gets harder and harder to do that though, doesn't it? Just last night we learned about Wagner's apparent coup attempt against Putin. I imagine that may catalyze some de-risking of equities on Sunday night, along with a bid for oil, gold, platinum, wheat, and long bonds.
The Macro
We're seeing signs of the labor market softening as jobless claims have risen 30% year-to-date and quits figures are lower, but it isn't yet a sign that it's breaking. For that to happen it's more likely that the services industry needs to slow meaningfully, and with the flash PMI services data we received today showing expansion, we're not there quite yet.
There is some good news on the inflation front. We're seeing ISM prices paid move lower, and that leaves less pressure to pass on to customers in the form of cost push inflation. However, we're also seeing ISM manufacturing lowering prices to customers in order to stimulate what have been slowing sales. A sign that business conditions are deteriorating as we're likely set for the 10th month in a row of contracting manufacturing activity.
Leading economic indicators continue to fall, now for 14 consecutive months. It's becoming more likely that we head into a recessionary period, but our work at MacroVisor suggests that won't happen until the services industry begins to see contraction and unemployment claims exceeds 300,000 per week.
The Fed's revised dot plot showed a terminal rate of 5.6% expected this year. The Fed also revised up their inflation and economic expectations.
This shift in the dot plot would imply a range of 5.5% to 5.75%, which is still higher than what the market is currently pricing in and 50 bps higher than the current policy range.
Fed Funds Futures also remain skeptical of the timing of cuts, seeing them starting as early as January of next year, despite the Fed's messaging to the contrary.
The Week that Was
We saw the Russell down over 3%, the Dow down 1.7%, and the NASDAQ lost 1.4%. But the tech-heavy index is still up 28.9% YTD.
Oil was hit harder than the Russell, the former of which is beginning to see some lopsided positioning. We'll look at that shortly.
Underneath the surface of the S&P 500 we saw weakness in much of tech, with the noteworthy exceptions of META and AMZN. TSLA and AAPL traded relatively flat on the week.
Healthcare had a reasonable bid and there was some strength in a few defensive names and financials. Other than that it was a a pretty difficult week. The most challenging since the SVB failure during March.