Another week of summer trading in the books but it was far from boring. There were earnings reports from retail stocks Macy’s, Dick’s Sporting Goods and Foot Locker (among others) that warned of poor earnings and a weaker outlook as persistent inflation may finally be causing the consumer to reduce spending. Not to mention that student loan payments are now resuming and will further pinch consumers as the COVID moratoriums expire. What was notable is that investors sold some of these stocks down 20-30% in a matter of hours.
Jerome Powell also made a speech on Friday at the Jackson Hole Symposium and repeated the same outlook on combating inflation saying a pause may or may not happen at the September meeting (thanks for clarifying). For the most part, I think the market is looking past the September meeting and waiting for the lagged effects of the rate hikes to emerge. Already we are seeing severe challenges in the real estate markets and now retail stocks are signaling a downgrade to consumer spending. Will the labor market finally weaken over the next few months or will employers pay those higher wages?
The S&P 500
The S&P 500 did manage a small gain this week after three weeks of pulling back from the July high and momentum does look to be swinging to the downside. Stocks are trading heavy under the weight of rising 10Yr yields and the potential for consumer spending slowing in the coming months. The stock market is in need of a positive catalyst and that is getting hard to find as the hopes and dreams of a soft landing are beginning to fade.
Looking purely at technicals, it wouldn’t be a stretch to see prices in the $SPY ETF above decline by another 3-5% in the coming week. SO far, there has been no acceleration lower and that means there is a case to be made for higher prices but support in the $420-430 area should hold if stocks are going to rebound to the top of this chart.
That is all for this week, have a great rest of your summer!
Paul J McCarthy III CFA
President, Kisco Capital