Weekly Commentary | July 17, 2022

Macro Picture

Stocks had another volatile week and despite a strong rally on Friday still finished in the red.  On Thursday, the S&P touched the lowest level since June 22nd before the rally.  

Three things were on every investor's worried mind this week:  the start of what is anticipated to be an ugly second-quarter earnings season, the US CPI print, and a lot of global macroeconomic data that was likely to show further deterioration.

By the middle of the week, the concerns seems justified with the market down about 3%-4%, terrible bank earnings from JP Morgan and Morgan Stanley, and then inflation coming in hotter than expected ... AGAIN.  

Yet, when the dust settled, the market finished down just 1% and 10-yr yields were off just 15 bps.  Highly cyclical sectors like semis and banks finished the week UP 1-2%.  What the deuce?

The narrative appears to be changing again.  As we've described, the first quarter was about a rising rate/rising inflationary market and the associalted global monetary response.  In the second quarter, that shifted to a recessionary narrative characterized by stabilizing yields, still rising interest rates and inflation, widening spreads and economic deterioration.

In the third quarter, we seem to be shifting again.  This quarter's narrative will likely be less black and white and more focused on the magnitude of the slowdown, how far down earnings estimates will drop, and the depths at which global assets will be sold down.