The Weekend Edition # 48

Welcome to another issue of the Weekend Edition!

Thank you to all who’ve read and subscribed to the newsletter this week!

Last weekend we posted our second article on China and the third article will be posted soon. My paid subscriptions are now active on Substack for $10/month or $100/year. I’d be grateful if you’d consider signing up to support my work; we have exciting articles ahead.

Here’s what we cover this week:

• Market Recap - Some relief

• Macro - Jobs Friday

• Earnings Season Ahead

• Premium Posts of the Week - China and Midyear Recap

• The Week Ahead - Economic & Earnings Calendar

• Closing Thoughts - Turbulent times ahead

Let’s dive in ⬇️

Market Recap - 05 July - 08 July, 2022

A shorter week in the market with the 4th of July holiday on Monday but, not an altogether terrible week. The broad market indices were all up for the week although we still remain in bear market territory for the Nasdaq and the Russel. Basically, we had a nice relief rally.

We did have Jobs Friday, which the market didn’t seem to like very much and next week we have a chock full of events on the calendar.

The Vix has retreated back to a more decent zone. The term structure of the Vix is back in contango with front month Vix more elevated. But, with earnings season starting next week and the CPI numbers coming out, I think we will see more volatility. I’d be looking at volatility while it’s cheap.

Commodities

Commodities have certainly been the hot topic of the week. The volatility has been quite pronounced and we’re seeing broad declines across commodities.

Oil, gold, natgas have all been volatile with violent swings to the downside. Oil and Natgas have recovered somewhat but, we’re still at depressed levels. Copper on the other hand has just crashed.

Copper is down almost 30% from it’s 52-week high and it’s no surprise. Copper is always the first to signal a recession - I’m sure you’ve heard the term Dr. Copper by now, as it’s meant to have a PhD in economics. Copper is used in almost every facet of manufacturing and the decline signifies an impending slow down in the economy.

We did get the Atlanta NowCast GDP numbers that were revised yesterday to -1.2% for the second quarter’s GDP growth. This firmly suggests a recession.

Soft commodities however, have rolled over quite a bit recent weeks. The spike we saw primarily as a result of the geopolitical situation in Europe seems to be abating. This should help ease some inflation concerns and perhaps, fewer drastic measures to fight inflation.

Macro - Jobs Friday

The unemployment rate came in at 3.6%, unchanged from the previous month - signaling a strong job market. Non-farm payrolls were also much higher than estimated - 372k vs. 265k estimated.

However, one point to note is the labor force participation rate that has not moved up much at all and continues to remain below pre-pandemic levels. The question remains whether there will be sufficient job openings to accommodate these workers should they wish to return back to work.

Recession is a valid consideration right now and with a job market this strong, the Fed will probably not hesitate to continue tightening aggressively. The market is pricing in another 75bps hike for July’s Fed meeting on 26-27 July.

Earnings

There were just a few earnings this week. Nothing of note to report. However, we do have earnings season starting next week, with JP Morgan reporting on the July 14 (that marks the beginning of earnings season for me).

I do believe we will have a more challenging earnings season this quarter. We’ve had peak inflation work it’s way through the system and sales comps will be much more challenging. We’re already seeing quite a few companies lower their estimates such as RH, Upstart etc.

As always. I will be following earnings with broad overviews and will be posting more in-depth premium reviews. So stay tuned!

Premium Posts of the Week (ICYMI)

The Week Ahead

Economic Calendar (time in ET)

Earnings Calendar

Closing Thoughts - Turbulent times ahead

Time seems to fly. It seems just like yesterday we were getting ready to start earnings season and we’re here back again. It also seems like just yesterday that we had the CPI numbers come out and here we are with that coming out again next week. And yet again, we hear about inflation possibly peaking.

But the Fed minutes were out earlier this week and this is what was said:

I hope I’m wrong but, I don’t see the Fed pivoting to a dovish stance anytime soon. With the strong labor market and elevated level of inflation, not to mention the still strong housing market, I still think we have more tightening to go, even if it is inducing a recession.

Earnings season will also likely be brutal this time around, and we probably will need to brace ourselves for a more a challenging market ahead. I will definitely be covering earnings season quite closely, given the tough season we are about to see.

Here’s wishing you a happy weekend, and safe investing.

Sincerely yours,

Ayesha Tariq, CFA

There’s always a story behind the numbers

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None of the above is Investment Advice. I may or may not have positions in any of the stocks mentioned. I have no positions in any tickers mentioned as of the date of publication of this newsletter. I have no affiliation with any of the companies other than that mentioned here.