The market rallied again and established the best back-to-back sessions after a Fed rate hike yesterday – and this was a 75-basis points (bps) hike. The New York Stock Exchange (NYSE) Market Breadth was impressive, but less so on the NASDAQ Composite.  Volume however was weak.

Market Breadth	NYSE	NASDAQ
Advancers	2,447	2,834
Decliners	777	1,722
New Highs	44	84
New Lows	50	131
Up Volume	3.24 billion	3.31 billion
Down Volume	1.10 billion	1.46 billion

All the major indices were higher, but Bitcoin (BTC) stole the show and might be on the verge of a monster rally:

• SPDR S&P 500 ETF (SPY) +1.21%
• Nasdaq Composite (COMP) +1.08%
• Dow Jones Industrial (DJI) +1.03%
• Russell 2000 (RUT) +1.34%
• West Texas Intermediate (WTI) +0.86%
• CBOE 10 Year Treasury Yield (TNX )-1.94%
• Bitcoin (BTC) +4.32%

Since the June 16 bottom, small caps have led the way:

• Vanguard 500 Index (VOO) +11.2%
• Vanguard Small-Cap Index (VB) +13.4%
• Vanguard FTSE All-World exUS ETF(VEU) +3.8%
• iShares Core Aggregate Bond ETF (AGG) +3.8%
• Invesco DB Base Metals Fund (DBC) -12.5%

Heat Map

Real Estate (XRE) was the best performing sector, followed by Utilities (XLU), then cyclical sectors Industrials (XLI) and Materials (XLB).

The individual Heat Map was very impressive, with an ocean of green and specks of red, with the largest standout being Meta (FB) in the red.

Key Charts

For all the assumptions and hopes that the Fed might not go too far to fight inflation, check out the spike in the 10-year breakeven inflation rate. It’s still in a downtrend. But that move is an ominous reminder of how treacherous the risk of inflation remains.

While the ten-year breakeven is spiking higher, the ten-year bond yield is breaking down big time. After gapping down a few sessions ago, it’s been a slippery slope.  In fact, the chart is a perfect example of a head-and-shoulders formation (bearish).  This has been a swift pullback, and now the big support is 2.50%.

Earnings Roundup

Apple (AAPL) did well, and Amazon (AMZN) did even better against very low expectations. On the flip side, Intel (INTC) crumbled after posting results.

Apple Money Machine

Conclusion

This is a very confusing time. But I think it’s simple. The economy is moving toward an “official” recession, and the stock market is looking at the end of a recession.

But for now, this is still a good bear market rally.

Today’s Session

For me, the biggest news this morning is the persistent decline in real wages – getting more dramatic.

Tons of economic data out this morning.  Almost all of it underscoring persistent inflation, which means the Powell Pivot could come later than extrapolated form his question-and-answer performance on Wednesday.

In June, Americans earned more in nominal dollars and spent a whole lot more.  The difference made up by in dipping into savings, pushing the rate to 5.1%, which is the lowest since August 2009.

Personal Income and Spending

I’ll go into greater detail in Payne’s Perspective out Monday before the open. For now, earnings might hold the market up initially, but as the bears go on the attack to tame what has been a strong July, we could see selling ahead of the weekend. We are already seeing traders cashing in.

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