June 13, 2022
Good morning,
There should have been a sign “Hardhats Required” for all participants before the overnight session in the Futures market opened last night. Futures (remember, a capital “F” with no underlying description means the King Contract – S&P 500 Index Futures) opened at 6pm EDT Sunday, down over 1% on expanded fears of more aggressive Fed tightening following Friday’s CPI report. Fear is more contagious than Covid among traders and it continued to push markets down by over 2% as the sun hit the U.S. eastern shore this morning. The contracts have been resting there for the past few hours and look to be there at the opening of our cash markets. Probably a hardhat day here as well.
The current narrative gripping markets worldwide is the notion that robust inflation will force the Fed to tighten so hard that the economy breaks. Talk of 75 basis point rate hikes by the Fed is common this morning on trading desks. Retail Sales data comes out Wednesday and may push back on the current narrative but that’s only hours before the Fed announces its next move following its own meeting this week.
Technically, we have a market decline without the support of a strong oversold condition (Morning Notes last week). This is the retest we talked about. Recall that most successful retests typically bottomed at lower lows, so don’t be too alarmed to see that. For perspective, we look at the fast-acting TQM-IRA model for non-taxable accounts. It is updated weekly and has gone from 72% equity to 14% equity (86% cash) in two weeks. Hardhats, indeed.
Be well,
Mike
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