Weekly Outlook (CPI Tomorrow) and Trade Ideas (7/11/23)
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Tomorrow morning is the CPI inflation number and I am going to be trading the move after, so here is what I am watching this week.
The markets closed last week down slightly after hotter than expected jobs data. Goldman Sachs reiterated their end-of-year price target of 4500 on the S&P 500 by the end of the year, expecting modest earnings growth. So far, risk on assets are outperforming the market, with Bitcoin being the top performer as seen in this graph from Goldman:
One thing the market is looking forward to this week is the June CPI inflation report. Analysts are expecting CPI to come in at 3.1% on a year-over-year basis. This week will be shaping up how the second half of the year will look in terms of macro and how the Fed is going to play the inflation game.
The CPI is expected to rise 0.4% month-over-month meaning that since January, the index will have increased by 5.9% on an annualized basis. This is leading some investors to believe that the June report may mark a bottom tick in the disinflation process. Higher rates is worse for stocks and the fear is that inflation remains excessively sticky and the stock market, which believes the Fed will soon cut rates, is wrong and the Fed will have to keep rates higher for longer.
Energy stocks closed off the week strong as well, specifically oil stocks. Saudi Arabia and Russia announced production cuts that amount to ~5% of global demand. US inventories fell as well, finally showing a shift in the sector with tightening of supply.
Earnings season also starts this week with Delta Airlines on Thursday and then the banks on Friday. Traders will be watching to see how strong the banking sector is with comments from JP Morgan’s CEO Jamie Dimon being closely monitored.