From the desk of Willie Delwiche.
Key Takeaway:
- Stocks celebrating small wins.
- For evidence to improve we need to see sustained strength.
- Fed confronted with deteriorating economy while still waging inflation fight.
When new lows have exceeded new highs for 34 weeks (and counting) and the Value Line Geometric Index (a proxy for the median US stock) is no higher now than it was five years ago, even small amounts of good news get celebrated. We saw some of that on Friday.
A decline in the longer-term inflation expectations number in the University of Michigan Consumer Sentiment Survey helped fuel a broad stock market rally. Recall that it was an unexpected uptick in inflation expectations in the preliminary June data that prompted the Fed to raise rates by 75 basis points last month. Odds of a 100 basis point rate hike at next week’s FOMC meeting had been on the rise following the release of unexpectedly hot readings for CPI and PPI. By the end of the week there were sighs of relief as the consensus was back to “just” another 75 basis point rate hike.
Regardless of the reasons, the reality is that upside volume on the NYSE outpaced downside volume by more than 9-to-1 on Friday. This was the first 9-to-1 up-day we have witnessed since mid-May. A second one, without an intervening 9-to-1 downside day, would give us the first hard evidence that a bull market could soon be in the process of being re-born.
