Market Update

by Michael Reinking, CFA - Sr. Market Strategist
June 29, 2022 2:30 p.m. ET
DOW 31,140 (+193), S&P 500 3,829 (+8), Russell 2000 1,712 (-26), NYSE FANG+ 5,031 (-12), ICE Brent Crude $116.42/barrel (-$1.56), Gold $1,819/oz (-$2), Bitcoin ~20.1k (-90)
  • Markets mixed in another choppy session
  • Oil reverses lower following product builds
  • Yields pulling back with flattening of the curve
  • 6 of 11 S&P 500 Sectors higher: Healthcare/Staples outperform, Energy lower
  • Check out some of the recent ICE content
MAC Desk Commentary:
If the current range in the S&P 500  holds (3,799 - 3,836), it will marginally surpass Monday in being the smallest intraday range for the year. That bit of stability is welcome after the violent reversal seen during yesterday’s session which saw the early 1% gain in the S&P 500 turn into a 2% loss when all was said and done. Yesterday, tech/growth stocks led to the downside with the NYSE FANG+ index falling nearly 4%. While equity markets are having another listless session there is quite a bit of volatility elsewhere. As we head to print major indices are mixed with S&P 500 up 8pts to 3,829 (+0.2%), the Dow is up 193pts to 31,140 (+0.6%), while the Russell 2k underperforms down 26pts to 1,712 (-1.5%).
As I just mentioned there is quite a bit of volatility outside of equity markets. Let’s start with global rate markets. This began overnight with releases regional inflation data coming out of Europe. There were opposing readings out of Spain and Germany with the latter coming in better than expected (the specific regional data within Germany was out prior to Spain and suggested this would be better). The German 10yr Bund had swung 10bps on each of these releases and is now down ~12bps on the day to 1.51%. These reports are a preview of the Eurozone CPI data on Friday (France tomorrow). This suggests that number could come in better than expected. However, at the end of the day there is really no report that could push the ECB off their current policy path, they don’t even have a single rate increase under their belt yet.
Speaking of the ECB all eyes were on Sintra Portugal this morning as ECB Lagarde, Chair Powell and BOE Bailey were speaking on a panel. As expected the conversation revolved around inflation with all of the speakers acknowledging the risk that things could get worse. ” It seemed that all  of the members on the panel suggested that we could be in a bit of a paradigm shift and that we would not return to the low inflation environment we’ve seen over the last decade. It was interesting to hear Chair Powell say, “The Fed’s revised policy framework is based on an old environment” he may have been setting the stage the Fed’s own symposium in Jackson Hole this August. Chair Powell made it clear that inflation is the Fed’s primary concern right now saying that “there is a risk that we go too far, but that is not the biggest risk. The bigger risk is failing to restore price stability.” If the message wasn’t abundantly clear already that should help. Part of the reason markets may be marking time is that tomorrow is the release of PCE, the Fed’s preferred gauge of inflation. As we have seen, markets have taken a cue from the Fed and are now completely data dependent so this could add some volatility to tomorrow’s session. Expectations are for core to increase 0.5%/4.8% m.m/y.y. US yields have not been quite as volatile as European yields but are also moving lower. There has been continued flattening of the curve with the 2/10 spread down to ~5bps. By the way the USD index is moving higher again today up ~0.5% to ~$104.80, with the Yen hitting new lows ~137¥.
Ahead of tomorrow’s OPEC+ meeting oil is the other area we are seeing some volatility. This morning, prices had continued the recent march higher amidst more supply issues (Libya) and continued concerns about OPEC capacity. At the highs ICE Brent was up ~2% to $120.50 before reversing lower following the release of today’s inventory data. Keep in mind this was data for the last two weeks as there was a technical glitch last week. There was a slightly bigger draw of crude, but this was offset by unexpected product builds. ICE Brent has now reversed and is marginally lower trading off 1% to ~117.00.   
Within equity markets, the economic growth concerns  are once again evident with cyclical sectors underperforming while defensive sectors are outperforming. Energy tops the list down >2.5% with materials also lower by ~1%. Commodities had been rallying early in the session, but the USD strength has undercut most of that. REITS are off ~1% following a short call by Jim Chanos on data center stocks.  Healthcare is the best performing sector up ~1% while consumer staples are also in the green following a strong report form General Mills. The mega-cap tech stocks seem to have noticed the move lower in rates over the last hour and are starting to perk up. Within Info tech there is strength in payment processors (v, MA) and software while semis continue to be very weak with the ICE Semi index down ~3%. Consumer Discretionary is around unchanged with weakness widespread across autos, apparel and especially travel related following a negative sell side report in the cruise industry. The latter is also having an impact on credit markets with travel related issues really weighing on the ICE BofA High Yield index which is hitting a new low.  

Since I’m on credit markets the NY Fed today announced that it will begin releasing a new data series on the last Wednesday of the month called the Corporate Bond Market Distress Index (see chart below). Their initial assessment is that, “Corporate bond market functioning appears healthy….but somewhat strained in the investment-grade segment”. We can watch this going forward.

Quickly looking ahead to tomorrow and it will be a busy day. Overnight China NBS, Japan/South Korea industrial production and a rate decision in Sweden will get some attention. The big catalyst of the day will be the release of personal income/spending and PCE ahead of the open. There are ~$33B of Treasuries set to mature from the Fed’s balance sheet, which essentially hits the monthly cap. In the commodities world there is an OPEC+ meeting, the EIA production report, nat gas inventories and the Department of Agriculture releases stocks. There are a couple of earnings reports including Linde and Constellation Brands in the pre-market and Micron after the close. Keep in mind tomorrow is month/quarter end so be on the lookout for some portfolio rebalancing. I’d expect attendance to start to dwindle ahead of the long weekend so if you are planning on extending the weekend enjoy the holiday and some time with friends/family.  

On the early pullback the S&P 500 held the key level ~3,800. Since mid-day the tech seems to have noticed that yields are moving lower again so have started to catch a bid. This is helping the broader tape as long as we don’t get a late day rug pull like we did prior to CPI the action isn’t bad. Notice we pulled back to the really fast 8d and found some support.  

Yesterday, we said we’d want to see oil fail around this area and getting a reversal today. Downside follow through tomorrow will help sentiment.

US Dollar index getting the push higher.