• Stocks under pressure as we end the quarter.

  • JJ promises ‘some pain’ as rates move up and targets inflation.

  • More FED members hinting at at least a 75-bps move – Capisce?

  • PCE Deflator due out at 8:30 am…This will be a KEY metric.

  • Try the Blueberry Pie and Ice Cream.

It was a non-event…. stocks didn’t do much of anything on Wednesday and finished almost flat.  The Dow added 83 pts while the S&P fell 3 pts, the Nasdaq lost 4 pts, the Russell gave up 20 pts and the Transports gave back 60 pts. 

The economic data showed that the final revision to 1st qtr. GDP was in fact ‘weaker’ than previously thought – coming in at -1.6% vs. the -1.5% estimate. Personal Consumption plunged – coming in at 1.8% vs the 3.1% expected. Mortgage apps were positive but only by 0.7%.  

Investors found it hard to identify any consistent direction yesterday as they parsed thru comments made by various FED members…..Chair Powell spoke at an ECB conference in Portugal where he tried to convince the audience that the US economy is in ‘strong shape and is well positioned to withstand tighter monetary policy’ in the months ahead all while remaining committed to bringing inflation down – saying that American’s need to accept the fact that his actions could produce a recession risk while they battled inflation and he did expect that the process would cause ‘some pain’.  Some pain?  Is he joking – have you seen how much ‘value’ has been destroyed over the past 6 months – because the FED lost sight of the mandate back in May 2021?  If you don’t know – let me, tell you…. More than $10 trillion dollars of paper wealth has been lost since the start of 2022 and that is just what has been lost in the stock market – if you include the losses in the crypto space – you can toss in another $2 trillion. 

I wonder – did they take that Matt Damon crypto commercial off the air yet?  You know the one.

“The 4 simple words that have been whispered by the intrepid since the time of the Romans – Fortune favors the brave….” 

Yeah – how’s that working out?  Well – it isn’t at the moment…. Bitcoin is down 74% from the high it hit on November 9, 2021 ($70,000) ….…On June 18th – it pierced $20k and traded as low as $17,700 before rebounding – this morning it is trading at $19,300…. Ethereum has tumbled from its $4k high to fall by 75% - this morning it is trading at $1k.  Should we add in all of the stupidity over NFT’s? 

But then again – some will say that about the stock market – you can point to all of the Cathie Woods names and find that they have collapsed by at least that much if not more…. I mean her position in HOOD is down 90% and COIN.  That’s down 86%...What about ROKU – 82%, and if you look at the other names in her ARKK ETF- which is off by nearly 55% – you’ll find even more blood on the streets…TDOC – 90%, CRSP – 73%, PATH -72%.......but then again – those are not the stalwarts of the US capital markets…those are not the names that you would build a foundation on – and if you did – then you probably won’t want to open your upcoming quarterly account statement.

Now after years of strong growth, it’s time to pay the piper……the first 6 months of this year have not been good – stocks are not holding up very well, in fact this is the worst start to a year since 1970.  The Dow – 14%, the S&P – 20%, the Nasdaq – 29%, the Russell down 24% and the Transports -20%. – But a look at the broad S&P sectors reveals even more information.  Consumer Discretionary – XLY, Communications – XLC are down by about 30%, Tech – XLK down by 26%, Real Estate – XLRE down 22%, Industrials – XLI, Financials – XLF, Basic Materials – XLB all down by about 17%,  You can point to the Utilities – XLU, Healthcare – XLV, and Consumer Staples – XLP as relative ‘outperformers’ as they are down less than 8% while Energy – XLE is the ‘outperformer’ surging, up 32% on the year.

Stocks are being beaten up by the ‘boom / bust’ cycle – you know – the very basic premise of Econ 101?  Rising rates and slowing growth – that appear in every cycle…. which is why it’s called a cycle…. the rapid increase in global inflation – coupled with the remnants of a global lockdown and now a war in Ukraine only exacerbating the cycle and that is weighing on stocks and bonds. But do not despair – the last time this happened – was 1979 and boy did it get really ugly….and while I do not want to see it happen again – I am in the camp that it very well could, we have spent more than 14 yrs. stimulating the economy, artificially keeping rates below where they should have been naturally and pumping money into the system like a drunken sailor….at some point – it has to end and that won’t happen until the FED normalizes and that my friends is still a ways off…..Rates need to go higher and the balance sheet needs a haircut – a big haircut – so while that is happening, be prepared for a rough ride as investors bet that the FED can’t navigate anything remotely considered a ‘soft landing’.

Today is the final day of the month and the quarter…and stocks are not behaving very well.  Futures at 5:30 suggest even more weakness ahead…Dow futures down 380 pts, the S&Ps down 60 pts, the Nasdaq down 230 pts and the Russell is off 30 pts.  Recent comments by different members of the FED only accelerating the move lower.  Daly, Williams and now Loretta (Mester) telling us that they support a 75-bps rate hike in July IF conditions remain the same…. that’s great, what if conditions get worse?  The implication there is that they would support a 100-bps hike – an idea that has been floated a couple of times this year, but also one that was most recently floated by FED Chair Powell when he appeared on Capitol Hill 2 weeks ago.  He needed to get it out in the public square for consumption, he needs to have people talking about it, so that investors/portfolio managers can consider the option and then make targeted decisions. Hoping that the market will do the dirty work ahead of the move – in a ‘sell the rumor – buy the news’ event.

Eco data today is all about the FED’s favored inflation read – the PCE Deflator…. (Personal Consumption Expenditures) and it is expected to rise by 6.4% y/y and 0.7% m/m – BOTH readings that are higher than they were last month.

Like I said yesterday - Listen to how they interpret and report it…..I suspect that if it is higher – they will say that it is a lagging indicator and that next month’s reading ‘should be’ lower as they try to calm the reaction….…..If it is lower than the estimate – then they will say – ‘See, we told you…inflation has peaked and is moving lower….’  - hoping to stop the bleed….  My gut tells me that is not happening…. But we can hope can’t we.

The 10 yr. treasury rose in price (think safety trade) and that caused yields to move lower…. ending the day yielding 3.087% down from 3.17% on Wednesday.  This morning treasury prices are up again (think capital preservation) and that is forcing yields lower again…. currently they are yielding 3.04%.  Now this makes no sense considering the FED is telling you to expect a rate increase in 4 weeks….so tread lightly, because as rates rise, treasury prices will decline…. with FED funds about to go to 2.50% - 2.75%.  10 yr. treasuries should be yielding closer to 3.5% unless of course – investors are pricing in a long and deep recession…. (Think 1979-1982).

Tomorrow starts the 3rd quarter…and earnings start in two weeks…. Estimates are being revised (lower) and the expectation is that the C-suite will warn of tougher times ahead….2nd quarter Atlanta FED GDP estimates have the economy growing by 0% - I guess that’s better than -1.6%, no? 

Traders are ramping up the bet…. the bet that the economy will collapse under the weight of the FED tightening…. forcing JJ to blink…. Fed fund futures have done a complete 180 and are now pricing in a 50-bps rate CUT in 2023…. Oh boy.

Oil – is bouncing around…. currently trading at $109.65/barrel. 

European markets are under greater pressure this morning… all down by more than 1.5% with France, Germany, and Italy down more than 2%.  The story?  Nothing new…. inflation is surging and investors there are concerned that the ECB (European Central Bank) is way behind the curve and will likely need to change the narrative in order to give the impression that they can arrest inflation….vs letting it burn out at its own pace…which would be really ugly…. Just sayin’.

The S&P closed at 3,818.  The markets are weak this morning…and if the PCE report suggests that inflation is not peaking then watch as the algo’s go into overdrive – creating waves of sell orders as we move into the long holiday weekend…..Also do not expect the buyers to stand in place and get run over…oh no, they will cancel their inline bids and move lower – as they should – its called risk management. 
Stay focused…. This is not the time to get rattled…. remember – ‘Fortune favors the brave…’  continue to put money to work overtime and not all at once…. it is called dollar cost averaging and works to your benefit if you stick to the plan…. I remain in the camp that says the road ahead is full of potholes and I expect that we will re-test S&P 3600 sooner vs. later.   

Blueberry pie and ice cream 

What’s better than warm blueberry pie and vanilla ice cream on the 4th of July?

This is simple to make and so good to eat.  But because it is baking you can’t really wing it; baking is more like a science – so you have to follow the directions.

For this you need:  1 box of Pillsbury pie crust – you can find it in the dairy section of your grocery store.  ¾ c of sugar, ¼ c of cornstarch, 1/8 tsp of each - allspice, cinnamon, and salt, 4 c of fresh blueberries, 1 tblsp of butter, 1 egg yolk, 1 tbspn of heavy cream.

Grease a pie dish with butter, then roll out the crust and fit it into the pie dish – leaving enough of an edge to seal against the top layer of crust. 

Mix the sugar, cornstarch, allspice, cinnamon, and salt in a large bowl.  Then add the blueberries and toss gently to coat – you don’t want to crush the berries.  Now pour this mixture into the pie dish with the crust.   Cut the tblsp of butter into small pieces and place strategically on the blueberries. 

Now unroll the second pie crust – place over the top of the pie – now using your thumb and index finger – go around the edge, pinching the top crust to the bottom crust – make it look nice. 

Next mix the egg yolk and the heavy cream – using a pastry brush – brush this egg wash on the top crust.  Sprinkle a little more sugar on the crust - Using a fork – go around and poke holes (gently) in the crust – don’t overdo it…. Refrigerate for 20 mins.

Now heat the oven to 400 degrees.  Place a baking sheet on the rack in the middle of the oven.  Remove the pie from the fridge and place on the baking sheet and bake for 20 mins.  Now – reduce the heat to 350 and let it bake for about 40 more mins or until the crust is a golden brown and the blueberries are bubbling. 

Remove and allow it to cool for about 3 hrs – this allows the blueberry filling to set.   When ready to serve – you can eat it just like that or you can ‘warm it up’ in the oven.  Make sure to have plenty of Haagen Daz vanilla ice cream on hand to serve with the warmed pie…. Happy 4th of July! 

This desert should cost you $20 all in.

General Disclosures

Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.

Definitions and Indices

The S&P 500 Index is a stock market index based on the market capitalization of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s.

UNLESS OTHERWISE NOTED, INDEX RETURNS REFLECT THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS, IF ANY, BUT DO NOT REFLECT FEES, BROKERAGE COMMISSIONS OR OTHER EXPENSES OF INVESTING. INVESTORS CAN NOT MAKE DIRECT INVESTMENTS INTO ANY INDEX.

BJAM is an investment advisor registered in North Carolina and Arizona. Such registration does not imply a certain level of skill or training. BJAM’s advisory fee and risks are fully detailed in Part 2 of its Form ADV, available upon request.

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