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7/7/2022 10:15:07 AM Eastern Time

EVERYTHING CAN CHANGE (AND SOMETIMES FOR THE BETTER)
By Charles Payne, CEO & Principal Analyst

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In a New York minute, everything can change

In a New York minute, things can get pretty strange

In a New York minute, everything can change

In a New York minute

-Don Henley

A couple of weeks ago, Energy (XLE) was the only winning sector in the S&P 500, and many were saying those mega-cap Technology (XLK) names would never have the same gusto.

A couple of weeks ago, Wall Street was battening down the hatches for more hurricane-like winds of inflation, and now everyone is bracing for the whirlwind of a recession.

The ten-year bond yield had a date with 4.00%, and the commodities super cycle was only in the second inning. Now, everything is changing in a New York minute.

Suddenly, Energy is down more from its 52-week high than Technology,and commodities are sinking like rocks.

What Recession?

The Federal Open Market Committee (FOMC) minutes released yesterday had zero mentions of a “recession,” as the Fed spent more time on messaging. Powell & Co are pretty pleased with their handiwork – jawboning the economy lower and making financial conditions tougher while firing only a  few shots.

"Many participants judged that a significant risk now facing the Committee was that elevated inflation could become entrenched if the public began to question the resolve of the Committee to adjust the stance of policy as warranted."

Many participants noted that the Committee's credibility with regard to bringing inflation back to the 2 percent objective, together with previous communications, had been helpful in shifting market expectations of future policy and had already contributed to a notable tightening of financial conditions that would likely help reduce inflation pressures by restraining aggregate demand.

Not a Canary

I suspect they are locked into a 50-basis points (bps) hike unless the next Consumer Price Index (CPI) report is a big miss and lower than anticipated or north of 9.0%.

Meanwhile, the Bond market is moving around like a long-tailed cat in a room filled with rocking chairs.  The volatility has surpassed the period of the initial Covid-19 shock and is racing toward levels last endured during the Global Financial Crisis (GFC). As a result, bonds have lost the image of the canary in the coal mine.

Upon Further Review

When the Institute for Supply Management (ISM) Service number came in better than the consensus, bond yields made an about-face and rallied higher as stocks began to meander. But it wasn’t all so rosy. All components moved lower, and ‘prices paid’ remains far too high. And employment in both the services and manufacturing index has shifted to a contraction.

And remember, new orders minus inventory are at levels associated with past recessions.

Tough Sledding but Rays of Hope

The last shall be first…or something like that. Growth is beginning to stage a rebound. Perhaps it’s an oversold trading bounce, but it’s encouraging.

However, yesterday, there was a cautious feeling to the session reflected in the strength in Utilities (XLU), but there is also a notion that perhaps value will begin to live up to the hype.

Volume was light and market breadth was discouraging, so it’s a stretch to try and make more of the day than it was, which was mostly a lazy summer session bracing for very big news.

There’s the jobs report on Friday, followed by the most important economic datapoint these days – CPI.

But as long as the mega-cap is edging up, all is well in the universe.

Portfolio Approach

We added several positions back to the Current Buys/Starter Portfolio and are going long a new position in Consumer Discretionary in our Hotline Model Portfolio. 

Today’s Session

Initial jobless claims are edging higher, and layoffs popped big time.  The implication is that maybe the Fed doesn’t have to destroy an economy that is lurching into freefall.

Job Cuts Surge Up 57% from May 2022, 59% from June 2021

U.S.-based employers announced 32,517 cuts in June, a 58.8% increase from the 20,476 cuts announced in the same month last year. It is 57% higher than the 20,712 cuts announced in May, according to a report released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.

June marks the highest monthly total since February 2021, when 34,531 cuts were announced. It is the second time this year that cuts were higher in 2022 than the corresponding month a year earlier.

There are lots of bargain hunters out this morning. 

There are two ways to deal with this market.  Buy for the bear rallies and buy and endure wild gyrations.  We are trying to do both but buy and hold is the mission.

Long Idea: Tractor Supply Company (TSCO) @ $197.56
Industry: Consumer Discretionary; Specialty Retail
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BACKGROUND: Tractor Supply Company operates as a rural lifestyle retailer in the United States. The company offers a selection of merchandise, including equine, livestock, pet, and small animal products necessary for their health, care, growth, and containment; hardware, truck, towing, and tool products; seasonal products, such as heating products, lawn and garden items, power equipment, gifts, and toys; work/recreational clothing and footwear; and maintenance products for agricultural and rural use. It provides its products under the 4health, Producer's Pride, American Farmworks, Red Shed, Bit & Bridle, Redstone, Blue Mountain, Retriever, C.E. Schmidt, Ridgecut, Countyline, Royal Wing, Dumor, Strive, Groundwork, Traveller, Huskee, Treeline, JobSmart, TSC Tractor Supply Co, Paws & Claws, and Untamed brands. As of December 25, 2021, it operated 2,003 Tractor Supply stores in 49 states, as well as 177 Petsense stores in 23 states. The company operates its retail stores under the Tractor Supply Company, Del's Feed & Farm Supply, and Petsense names. It also operates websites under the TractorSupply.com and Petsense.com names. The company sells its products to recreational farmers, ranchers, and others. The company was founded in 1938 and is based in Brentwood, Tennessee.

SKINNY: TSCO posted strong results in Q1, showing profitability and resilience. Moreover, comps store came strong up 5.2% despite a pressure on gross margin due to inflation and higher freight costs. In addition, in early June the company provided upbeat comments on Q2 sales and earnings, expecting another record-breaking quarter. Target $240.

There are no options with this idea.