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4/12/22
STOCKS – SHOP, AMD, JPM
MACRO – SPY, QQQ, IEF/LQD
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Stocks jumped higher after the CPI report as core inflation came lower than expected. It led to the S&P 500 gaining more than 1.3% and the QQQ rising by almost 2% by 10 AM. Unfortunately, the rest of the day didn’t go well because both finished down. From peak to trough, the QQQ fell 2.7% on the day. It did finish the day down 42 bps overall, while the SPX dropped 34 bps.
That is pretty wild Intraday volatility and trying to understand this market is becoming more and more difficult. Now may not be the time to get into it entirely, but today’s movements seem to suggest the rate hiking cycle will be very short, and rising prices are likely to kill demand. Real wages were the story of the CPI report, in my opinion, and I think that is where a lot of the confusion came into the equation, which led to stocks rising at first. Real weekly earnings fell by 3.6%, the 12th month in a row, it was negative. It was also the weakest number recorded since 2006.
This weak number led, I think, to real and nominal yields dropping. But more importantly, it led to the 5-yr breakeven inflation expectations dropping by nearly nine bps and the 10-yr Breakeven falling by 5.5 bps by day’s end.
Because nominal rates fell initially, it dragged real rates down, which led to the equity market pop. But by the end of the day, the market decided real rates still needed to rise, which was basically when the equity market sell-off intensified. The TIP ETF continues to tell that story well.
There are hidden messages in this, which I will wait to get into on Thursday following the retail sales number. That will be a significant number to watch.
S&P 500 (SPY)
That said, the stock market still has further to drop because real rates have risen further, and today’s reversal is a pretty good indication that this is no longer a bull market. The reversal was very harsh, and I expect more follow-through tomorrow. I think the S&P 500 has formed a long-term Head And Shoulders pattern, but it requires the index to fall back to 4,170 to find out.
IEF/LQD
After easing some last week, financial conditions are probably starting to tighten again. The IEF/LQD ratio has begun to trend higher, and tomorrow we will get the latest Chicago Fed Financial Conditions Index report.
Shopify (SHOP)
Shopify announced a 10-for-1 stock split, and it seems the benefits lasted for about one day. Today, the stock fell by 4% and is back to support at $590. This one could quickly head back to $500.
JPMorgan (JPM)
JPM will report results tomorrow, and the stock finds itself sitting just above support at $129. Expectations seem pretty low on this one, and analysts have been cutting estimates like crazy. The last time they reported expenses were a big problem, and I’d imagine those will be the focus this time. A drop to $122.50 over the coming weeks doesn’t seem impossible.
AMD (AMD)
AMD dropped again and is now at $95. We will need to see what happens when it gets to $89. That’s all we can do right now.
That’s all for today.
-Mike
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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