OUTLOOK: The better outlook for inflation, interest rates, and growth drove the latest stage of the stocks rally, with capitulating investor sentiment adding extra fuel. The path of least resistance remains higher, with any inevitable pullback likely bought. August’ peak summer is deceptively quiet. The commodities surge risks upsetting the cooling inflation consensus. Whilst the dovish market consensus will be tested by coming inflation and Jackson Hole. August seasonality is typically some of the year’s worst. We focus on long duration and defensive growth, from tech and crypto to bonds. And more selective ‘value-trap’ cyclicals, small caps, commodities, with growth slowdown still ahead.
JULY: The S&P 500 rally extended to a fifth month and the NASDAQ has seen its best YTD gains since 1975. The rally healthily broadened from big tech as Value, small caps, and Asia led monthly gains. Fundamentals improved as US inflation hit a two-year low 3% and Fed potentially peaked interest rates at 5.25%. Whilst US Q2 earnings set a trough for this cycle, down 7%, and have been ‘less-bad’ with 80% beating lowered expectations. This all drove a capitulation in bearish investor sentiment, with retail bullishness hitting 50% (AAII) and hedge fund net longs 100% (NAAIM).
AUGUST: The Fed and ECB don’t meet again until September. Whilst US Congress and much of the northern hemisphere will be on holiday. Inflation, earnings, and commodities are our focus. 1) The latest FOMC minutes and Jackson Hole meeting plus payrolls and inflation data are an important test for the dovish market consensus. 2) The trough Q2 earnings season ends with a bang as heavyweights AAPL to NVIDIA report. 3) The commodities rebound could extend with China stimulus announcements and OPEC’s monitoring meeting signaling continued oil supply restraint.
All data, figures & charts are valid as of 01/08/2023.