Stock Market Overview for the Week of June 13, 2022

The S&P 500 continued its downtrend pattern this week, which we put under the microscope with skepticism last week. Those questions were answered, and the S&P is ending the week near its previous lows with the path of least resistance being new lows.

The nature of the bullish pullback and continued consolidation near the highs of the pullback made us skeptical of the success of this pattern, but it delivered and broke down out of the consolidation with considerable momentum before a pretty violent gap down on Friday morning.

And there was really nowhere to hide this week.

Every major S&P sector, including energy, was down on the week. We saw continued significant weakness in tech, which lead to a barrage of headlines claiming the end of the decade-long tech dominance over the equity market. Even the “safe haven” tech stocks like Apple and Amazon underperformed the S&P this week, with Amazon down about 7.5%.

Much of this was likely in anticipation of the ugly 8.6% YoY May CPI print we got on Friday, which is the worst since 1981.

Before we move onto oil, here are the return numbers for US indices on the week:

S&P 500: -5.5%
Dow Jones Industrial Average: -4.5%
NASDAQ 100: -6%

Last week we spoke about the breakout setup forming in crude oil, which is well underway now. While on the surface, the setup looks to be coming out successfully, it raises a few questions too. Let’s take a look at the chart:

Everything looks good, right? It broke through the resistance level and is trending upwards. Well, typically in breakouts you’d expect a significant expansion in volatility as the breakout occurs and we haven’t seen that.

Instead, we saw a volatility contraction, which indicates a lack of aggression on the part of the bulls. Breakouts are all about one side of the market taking all of the liquidity making short-term volatility very high.

While the path of least resistance still looks to be to the upside, recent price action doesn’t inspire high confidence.

In The News

The Consumer Price Index (CPI) for May was 8.6% YoY, which is the highest print in 40 years.
The University of Michigan Consumer Sentiment Index hit its lowest reading in history of 50.2 for the beginning of June.
The European Central Bank upset the market by only hiking 25 basis points. European stocks declined on the decision.
The average consumer price of gasoline in the United States reached $5.00 per gallon this week, according to GasBuddy.
The latest in the Elon Musk Twitter has Twitter giving Musk access to Twitter bot data, likely to kill his breach of contract argument to get out of the deal.
Tesla filed to split it stock again
Redbox (RDBX), a company that operates DVD rental kiosks is a new meme stock. It’s too complicated, just read Matt Levine’s explanation here.
DocuSign (DOCU) dropped 25% following lukewarm guidance, and took other software stocks down with it
Retail got clobbered again as Target lowered their guidance yet again. They’re dealing with an inventory glut
Chinese internet stocks got a big lift this week, following the CCP granting several video game licenses, potentially signaling the end of their crackdown on tech companies.
Friday, June 17 is a triple-witching day, watch for increased volatility

Upcoming Earnings

Being between earnings seasons, there’s not a whole lot to come this week but it seems like the few reports we do get are pretty significant.

Target and Walmart recently proved to us that retail made a big-time inventory miscalculation, stocking up on way too much in anticipation of continued supply chain shortages. Unfortunately, with consumer sentiment being at the bottom of the barrel, personal savings rates plummeting and consumer credit usage skyrocketing, it doesn’t look like consumers are as eager to panic buy discretionary items for the time being.

Furthermore, it seems like every time a growth tech stock reports earnings, it gets slammed down 25% or more nowadays. This week we got DocuSign, but in the last few weeks we’ve gotten big disappointments from Nvidia (NVDA), Workday (WDAY), and so on.

Oracle’s (ORCL) report on Monday could further shake up the software space, as nearly every big software firm’s earnings report lately has echoed throughout the rest of the sector. Amid a downward spiral in tech stocks, earnings reports are one of few quantitative pieces of data we get on the real operations of the business, rather than analyzing trader and investor sentiment, the Federal Reserve, and so on.

Monday, June 13:

Oracle (ORCL)

Tuesday, June 14:

Ferguson (FERG)

Wednesday, June 15:

Nothing of note

Thursday, June 16:

Friday, June 17:

Nothing of note

Upcoming Economic Data

The past week provided us with a pretty grim picture of the US economy. These three data points all hit the tape just this week:

The average consumer price of gasoline in the US hit $5.00
The University of Michigan Consumer Sentiment Index hit its lowest level in history
CPI, the standard gauge of inflation, hit a 40-year high of 8.6% YoY

High energy prices, high inflation, and super low consumer sentiment isn’t a recipe for strong economic growth.

This week is another eventful one for economic data, here’s we have in store:

Monday, June 13: