Talk about a snooze-fest. Yesterday, there was a constant feeling the market could tank at any moment, and it appeared on its way more than once. The good news is that it held. In addition, market breadth was encouraging, with a major decline in new lows.

Market Breadth	NYSE	NASDAQ
Advancers	1,785	2,302
Decliners	1,496	2,354
New Highs	14	26
New Lows	65	145
Up Volume	2.34 billion	2.43 billion
Down Volume	1.98 billion	2.50 billion

The Russell 2000 small-cap index was the only major composite that finished higher. It bounced off the former resistance point, but only midway in the trading channel – which is pointed decidedly south.

Heat Map

Energy (XLE) got a bounce after a dive that would make a peregrine falcon jealous. However, defensive names continued their stealth dominance as Utilities (XLU) and Health Care (XLV) were the only two other sectors to join XLE.

Lots of hues of red on the screen; there just wasn’t any leadership from mega-cap stocks.

State of Economy

Atlanta Fed

The Atlanta Fed GDPNow forecast didn’t dip below zero, and that was good news. Also, at 0.3%, the scuttlebutt about recession cannot be dismissed.

Big D Got Dunked

I can't believe what the judge had to tell us

I got the jeep and she got the palace…-Mark Chesnutt

The Dallas Fed Manufacturing Survey was a disaster coming in at -17.7 from -6.5 and a consensus of -7.3. ‘ Input price’ increases continue to outpace the ‘selling price’ increases – they are doing profiteering all wrong.

The Dallas Fed hints at a serious disaster in the upcoming Institute for Supply Management (ISM) report (one more regional Fed report left – today is the Richmond Fed).

Portfolio Approach

We are adding a new position in Technology in our Hotline Model Portfolio this morning.

Today’s Session

Nike reported after the close, and laid an egg, as sales in China were dinged from all those lockdowns but also some anti-American sentiment.  The big issue, however, is excess inventory.  The 23% jump in inventory, especially apparel, is good news for consumers.  It also could help mitigate recession risk, which is still up in the air.

Lower Earnings Estimates

It’s the big debate on the street, but in some ways, it’s nonsensical to me. But everyone is saying the same thing, earnings estimates are too high.  My reaction is so what – if the market is going down it doesn’t seem to be waiting for Wall Street analysts to get their act together. 

I think we can get positioned ahead of the street that will be waiting for such cues.

Peak earnings growth correlated perfectly with peak S&P 500.

Now PE has changed and has turned negative – to levels associated with previous bottoms (March 2020 and December 2018).

This is a process, but there is no doubt in my mind the street is going to establish a case for a monster rally on lowered earnings estimates in future quarters this year – after those adjustments (wink-wink).

Comments

Charles I agree, this market is putting me to sleep. There is little logic behind trading these days. Seems that the narrative about our economy is one sided. Everyone is on the bearish bandwagon. Nike reports beats and guides on obvious challenges (supply chains, freight, higher costs but forecasts gross margins slightly low ~45%) and the market sells off. I would suggest that we all look at contrarian ideas. I like a not so well known startup called Hyliion ( @HYLN ). They are combining electrified power trains for big rigs with natural gas to extend range for long haul. That is a contrarian view because not all fossil fuels are bad. Natural Gas is the most realistic solution to traditional diesel. The infrastructure to distribute nat gas is in place. They just announced a collaboration with Cummins. They are the real deal and contrarian idea. Give them a look https://www.businesswire.com/news/home/20220628005532/en/ Paul Rotondi on 6/28/2022 9:03:34 AM

Why does it seem to be a surprise to people that the economy is slowing and revenue growth with it. I'm with you Charles. Sit on some cash and get ready to pounce. Phillip Jensen on 6/28/2022 11:12:19 AM

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