The Bear Hibernates – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

As the week ended, the S&P 500 was off and running, running ‘like a bull.’ After a record bear market, all signs are looking ‘bull-positive.’ All eyes are on the ‘hallowed’ S&P 500 as the index is at its highest mark since August of 2022, and…now entering into ‘bull’ territory. “I do believe the worst is behind us,” said Brian Belski, chief investment strategist of BMO Capital Markets. (He had a high year-end target for the S&P 500, surging in the 4300-4550 range.)

As the week opened all concerns were focused on the upcoming release of the CPI (Consumers Price Index), with the Dow Jones Industrial Average jumping 200 points. Reactions of the S&P 500 and Nasdaq were milder. Oil was sluggish, as Brent crude slipped again to $71.84, as the Saudis planned production cuts are taking hold. The 10-year treasury note was steady at 3.763%, from Friday’s Close of 3.744%. Overall, traders and investors were in a bit of a ‘jolly mood,’ with the overall street believing the Fed would ‘skip’ a rate hike Wednesday.

Early Tuesday, the ‘Bureau of Labor Statistics’ speaking of the CPI, noted the index rose just 4% a year, slightly lower than the street, and economists had anticipated at 4.1%. Street reaction was positive, further noting that a rate hike would be skipped. Gregory Daco, EY’s chief economist commented; “Inflation is sticky, and the Fed fears a ‘should I stay, or should I go’ dilemma.” We will have that answer on Wednesday. All the indexes waffled on Wednesday, as the market was digesting all of Jerome Powell’s remarks, mostly reiterating that, “getting inflation down to the Fed’s target, has a long way to go.” The general consensus amongst economists, strategists and the ‘street’ is the economy is slowly responding to the 10 months of rate-hikes, and accepts the prospect of more hikes if needed. Oil drifted lower on Wednesday, and continued hovering Thursday in the $69.00 to $70.00 range. As the Saudis have lowered production in order to adjust crude prices upward, economists and market strategists in the oil industry are stymied by the direction oil has taken since the Saudis’ announcement to lower production in May, with a majority calling for major increases in crude oil prices, which the opposite has occurred. Overall trading Thursday was up-beat with the market in a more satisfied state, understanding the ramifications of Mr. Powell’s strong comments made earlier in the week. The Dow Jones Industrial Average soared 350 points in early market trading as the Nasdaq and S&P 500 followed.

The Dollar is Back in Saddle…The Yuan’s recent short-term dominance has given way to the dollar. The yuan is under pressure, as interest rates of the U.S. and China are distancing, along with uncertainty of China’s economic growth. As the world’s second largest economy, China’s growth is stalling. Exports have fallen 7.5% in May, after jumping 8.5% in April. With creeping inflation, worldwide and in China, Chinese products are becoming cheaper abroad. “You have concerns about the pace of China’s recovery in the second quarter and you have some widening of the interest-rate differential with the U.S., so that will add more pressure on the renminbi,” (Yuan), said Carlos Casanova, senior Asia economist at Union Bancaire Privee. Since the closing down of one of the far-east’s leading banking centers, Hong Kong, massive out-moves of many large corporations have drained billions of commerce dollars to neighboring countries. China’s woes are hitting ‘home’ and the dollar remains a consistent tool.

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Gary Gensler, Securities and Exchange Commission Chair, speaking to the Wall Street Journal, on the agency’s crypto crackdown, Barron’s “I’ve never seen so much just noncompliance and hype masquerading as reality as I’ve seen in this field.”

David Donabedian, chief investment officer of CIBC Private Wealth U.S., Barron’s “We…know that the market bottoms while the economy is still in recession and begins a recovery. The second half of (2023) will have lousy economic headlines but the beginning of a more durable bull mark.”

Benjamin Bowler, head of global equity derivatives research at BofA, Barron’s “We would be careful not to give in completely to FOMO (fear of missing out), as a skipped hike is not a pause, inflation still handcuffs the Fed.,..and a U.S. recession remains on the horizon,” writes Mr. Bowler.

Jacob Sonenshine, Writer for Barron’s, “The market figures out the future pretty quickly. Blink once and you could miss the bull market.”

Ian Bonhotal, a brokerage research manager at Corporate Insight, a financial-services research and consulting firm, Barron’s “I don’t know if (meme stocks) have completely fizzled out,” he said. “But it’s certainly a shadow of itself.”