The Tightrope Loosens – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Heading into the final week of the first half of 2023, stocks were off in all three indexes, with the Nasdaq Composite leading the downward trend. It was the sixth straight day of the Dow Jones Industrial Average falling, however most negative days were 50 to 100 points, although still negative. Some favorites, and many high-technology leaders of the 1st half of the year, gave back some gains as the general market seemed to ‘tag-along.’ Even the ‘Wagner Fighting Machine’-Putin debacle was not about to influence traders and investors as it seemed the only important market news would be the PCE, (Personal Consumption Expenditures report) to be released later this week as the board of Fed Governors and of course Mr. Powell considers all the ramifications. He has strongly hinted that more rate hikes (well known), are ‘on the horizon.’ There was some concern the Putin-Wagner situation could either boost or negatively affect oil… it gained 0.5% initially and then settled back in the $69.00 to $72.00 range, languishing there for several days. “A contrarian view is that this is bearish (for) the oil markets because Putin will try to export every bit of Russian oil he can sell in order to pay off his supporters and keep the army on his side,” Andy Lipow of Lipow Oil Associates told Yahoo Finance.

The University of Michigan “Consumer Sentiment Survey,’ headed by Professor Joanne Hsu, (formerly an economist at the Federal Reserve Board), released the June number at 8%, “reaching its highest level in four months, reflecting greater optimism as inflation eased’” according to the latest update.

As Treasuries and high yield instruments flood the marketplace, Investors and some traders are finding it very prudent to move ‘market monies’ into these high-paying ‘safer’ investments of 4% or more. The ‘Consumer Confidence Survey’ released Tuesday, hit 109.7 in June, much higher than economists and strategists had predicted. “It’s hard to envision a recession if you look at the economic data readings we’ve had over the past two months,” said Art Hogan, chief market strategist at B Riley Wealth Management. “Now that we’re closer to the end of the rate-hike cycle, we’re in more of a place where investors view good economic data as a positive for earnings and stocks,” he said.

Indices were steady Wednesday and into Thursday as the market seemed to be ‘at-peace’ digesting a news filled week: inflation, rising consumer prices, a constant flow of Federal Reserve releases and the Putin war in Ukraine. Stocks woke-up Thursday, brushing-off “bad news.” All have weighed heavily on market investors, and all have been thoroughly ingested by the weary players. After ‘so much’ the consumer’s ears are deadened. Today’s consumers (all of us) are battle weary, facing and accepting soaring prices, and the unheard cost of living expenses. Yet record bookings of airline travel, sea cruises and Airbnb bookings, are showering the travel markets and far outdistancing prior 2020 numbers. Gasoline prices are down $1.35 a gallon from a year ago, settling in the $3.55 range. The U.S. consumer is ‘breaking-out,’ eager to ‘get-back’ to…normal…and ‘paying the price.’

Sugar, Sweet Sugar… Strong sugar demand and “El Nino” have affected cane crops and sugar production around the world. Coming off two years of poor crop production, sugar prices are poised to escalate even higher, with the consumer footing ‘the bill.’ Sugar reached 27 cents a pound in May 2023, its highest point in 12 years. Sugar is up 31% for January thru March this year. The International Sugar Organization has suggested that prices will likely continue to edge higher in the next 6 months of 2023. Presently ethanol demand has tapered off allowing more cane juice to be produced into raw sugar, garning 47.5% of production, up from 45.85% for ethanol last year. Your sweet tooth cravings will cost a bit more…as El Nino ‘stirs-the-pot.’

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Gregory Daco, chief Economist at EY, WSJ “The U.S. economy is presently displaying signs of resilience,” said Mr. Daco. “This is leading many to rightly question whether the long-forecast recession is truly inevitable, or whether a soft landing of the economy where inflation falls to a sustainable 2% pace without recession- is possible.”

James Mackintosh, Writer of “Streetwise,” of The Wall Street Journal, “The recession didn’t arrive because we had two pieces of surprising good news. First, energy prices dropped, helping support demand, as Europe secured supplies to replace Russian natural gas more easily than expected. Secondly, the economy and the jobs market turned out to be far less sensitive to interest rates than economists thought, at least so far. “(from his article: “Still Waiting For Recession”).

Virag Shah, portfolio strategist at Van Leeuwen & Co., Speaking to the markets drop on Friday, June 23, 2023., WSJ “It’s more of a healthy pull-back than a fearful pull-back. The market had a really good rally in the past two months or so after the debt-ceiling was done and the AI craze took effect.”

Andy Serwer, writer for Barron’s, ‘UP & DOWN WALL STREET,’ Barron’s “Years or maybe just months from now, dismal scientists and their ink will probably be coming up with “un-reasons’ to explain the great ‘un-recession’ of 2023. In fact I’m just going to say it: ‘There won’t be a recession this year.”