Tuesday, May 24, 2022

Morning Note: Consumers Plan to Spend Less, but Fly More -- And -- Weakening Housing Market

Well, judging by overnight and pre-market futures action, it's looking like the bounce off of technical support (green circle on the 60-minute chart below) that began last Friday may be short lived.

The street says the abrupt turn south is all about Snap's CEO guiding earnings for Q2 below the low-end of the estimated range. And judging by the futures action immediately following that release, yep, one could point to that as a catalyst. Social media darlings, as you might imagine, are taking a notable hit as I type.

Best Buy, in its earnings release this morning essentially echoed Snap's assessment (HT Peter Boockvar):
“Macro conditions worsened since we provided our guidance in early March which resulted in our sales being slightly lower than our expectations. Those trends have continued into Q2 and, as a result, we are revising our sales and profitability expectations for the year.”

It'll be interesting to see if that 3,800 support level on the S&P 500 survives the next test. Our base case for now suggests that it ultimately won't, but I'd be surprised if there isn't another tradable bounce or two off of that level first. 

Global preliminary PMI's (purchasing manager indices) are out, and they essentially confirm what we've been reporting in our weekly economic updates, growth is slowing.

50 is the dividing line between expanding vs contracting on a month-on-month basis:

Japan manufacturing: 53.2, from 53.5

Japan services: 51.7, from 50.7

Australia manufacturing: 55.3, from 58.8

Australia services: 53.0, from 56.1

France manufacturing: 54.5, from 55.7

France services: 58.4, from 58.9

France composite: 57.1, from 57.6

German manufacturing: 54.7, from 54.6

German services: 56.3, from 57.6

German composite: 54.6, from 54.3

Eurozone manufacturing: 54.4, from 55.5

Eurozone services: 56.3, from 57.7

Eurozone composite: 54.9, from 55.8

UK manufacturing: 54.6, from 55.8

UK services: 51.8, from 58.9

UK composite: 51.8, from 58.2

US manufacturing: 57.5, from 59.2

US services: 53.5, from 55.6

US composite: 53.8, from 56.0

Again, above 50 denotes growth; so what we're looking at right here is growth at a slowing pace. Which is consistent with our present assessment of US conditions. However, I must note that while, at the moment, our assessment leans toward mid-cycle slowdown, clearly, recession risk is on the rise -- which is something we're paying very close attention to.

With that in mind, here's from Bloomberg's Lisa Abramowicz yesterday:

"A survey of US consumers run by Morgan Stanley's equity team shows more than half of respondents plan to curb spending over the next 6 months due to inflation. Most of these cuts are expected to come from "highly discretionary categories," like eating out & footwear/apparel."

On the other hand, here's from Bloomberg's Joe Weisenthal on internet searches for plane flights:

"This doesn't look like recession." 

But, then again, (comporting with last week's economic update) April US new home sales numbers were just now released, and they came in at 591k versus estimates of 750k and 763k the prior month. That's a big miss! Stocks immediately took another leg down on that news.

We'll see if this weaker data gets under the Fed's skin.. I.e., will it have them softening their tone on tightening up on financial conditions. Of course that would be music to stock market bulls' ears, but, then again, they've vowed to stamp out inflation... 

Stay tuned...

Asian equities were a mess overnight, with 14 of the 16 markets we track closing lower.

Europe's firmly in the red so far this morning as well, with 15 of the 19 bourses we follow trading down as I type.

US stocks are getting hammered to start the session: Dow down 437 points (1.37%), SP500 down 2.35%, SP500 Equal Weight down 2.01%, Nasdaq 100 down 3.74%, Nasdaq Comp down 3.80%, Russell 2000 down 2.72%.

The VIX sits at 30.72, up 7.87%.

Oil futures are down 0.04%, gold's up 0.56%, silver's up 0.85%, copper futures are down 1.22% and the ag complex (DBA) is down 1.11%.

The 10-year treasury is up (yield down) and the dollar is down 0.25%.

Among our 38 core positions (excluding cash and short-term bond ETF), only 7 -- led by carbon credits, treasury bonds, silver, gold and AT&T -- are in the green so far this morning. The losers are being led lower by Dutch Bros, communication stocks, Disney, AMD and MP Materials.

"...in life and in investing, since there can be many different outcomes, uncertainty and risk are inescapable."

--Marks, Howard. Mastering the Market Cycle 

Yep, and it's all about keeping your head about you along the way...

Have a great day!