S&P 500 corrective mode following TSLA, NFLX earnings and Thu manufacturing plus unemployment data, continued Friday – too early yet to call this correction as over as the encouraging open had been eventually sold into.
It‘s all about Fed tightening bets meeting soft landing estimates. Well, what estimates I say when LEIs are still in decline mode for 15 straight months, yield curve is inverted etc? Messing up with traditional timing models for late Q3 recession is the already a few times mentioned excess savings and highly expansive fiscal policy and various remnants of corona era policies, these all worked and work to prolong its arrival as also covered in the latest video. Yet at least a modest recession is unavoidable in my view – only its timing, severity and when the stock market gets that, are open questions.
And stocks don‘t seem likely to move into a powerful, 10%+ downswing any time soon – consolidation and volatility triggered chiefly by rotations out of tech, and somewhat communications and only select discretionaries (remember my words about the relative strength of the consumer, which doesn‘t make for a bearish XLY case) into my best 2H 2023 sectoral picks of energy, industrials, materials and financials with further improvements in defensives incl. healthcare.
Friday, this effect wasn‘t powerful enough to return S&P 500 to the opening values as tech gyrated too much. Big picture, that‘s what we can expect in stocks over the coming weeks, making for a traders‘ market as select sectors are more richly valued than others. Market breadth is though broadening beyond the Top 7 stocks, and that means a sizable downswing is unlikely when the guessing game of market‘s focus is whether Jul is the last hike or not. This rally can run still more into the extreme greed territory.
Source: www.stockcharts.com
S&P 500 and Nasdaq outlook
4,560s did hold Friday, and the rounded 4,550 (give or take 2pts) area is next if need be – but given that bonds weren‘t in a clearly risk-off position anyhow you look at it, odds favor spending more time in the lower 4,570s instead Monday as rotations into value and cyclicals continue. 4,585 – or alternatively 4,592 if tech cooperates, are now short-term resistance levels.
Still OK and back to broadening market breadth – the correction in the stock market is to play out mostly in tech, or thanks to the lead cables affair, in some communications too.