A Market View From Happy Hour – Don’t Blink – JPMorgan Chase (NYSE:JPM)
As we turn the corner into the second half of the year, it appears as though the market may be coming around to understanding the impacts that a strong jobs report will have on inflation. For months, Happy Hour has been pounding the table on higher rates and no cuts in 2023 because of how sticky core inflation is due in part to the strength of the job market. Prices will remain elevated because companies know that people have jobs and, therefore, money. “Greedflation” is a term that has been thrown around a lot the past few months because companies know they consumers can abosorb the costs right now. The only answer to stamping down these ridiculously high prices is obnoxiously high rates. Unfortunately, the FED has been very good at raising rates too slowly over too long of a period of time.
Thursday’s jobless claims data showed a mix of fewer continuous filings and higher new filings, but did not provide a direction that the job market is heading. June’s Jobs Report may show that employment is still abundant which could lead to the market selling off in anticipation of more aggressive rate hikes. Jobs, as has been said many times here in the Happy Hour, is the last pillar to fall.
With the expectation of a 25 bps raise in a couple of weeks, it isn’t outlandish to think that we could go much higher if core CPI proves to be as sticky as we have expected and seen. Rates are just 150 bps away from being back to pre-21st Century, 33-year highs; around the end of the Savings and Loan Crisis, which is oddly being echoed today in regional banks. While we aren’t exactly in a similar crisis today, the risks and occurrences of delinquencies and defaults between consumers and businesses alike is extraordinarily high.
Bears looking for a downturn in the market haven’t been able to get it right yet. There’s plenty of data to suggest a far less rosy picture in the coming months, but pinpointing the catalyst that takes the market down has proven to be elusive. Some believe it will be a CPI print or a rate raise while others believe it will be something that breaks, like some regional banks did in March. Regardless, the broader market is very extended and it is understandable if investors refused to buy up here. It is also understandable if investors refused to short here as many squeezes have been occuring in the first half of 2023. What we have here is akin to a stand off. Will the bulls blink first or the bears?
Next week could be the week to blink. Starting out slowly on Monday and Tuesday, the week will violently ramp up in activity as CPI is released on Wednesday, July 12th and earnings season begins the following day. There will be a lot of focus on what the big banks reporting next Friday will have to say. JPMorgan JPM, Wells Fargo WFC, Blackrock BLK, and Citibank C all report on Friday, July 14th.
Today’s candle in the SPY SPY isn’t the kind that bears want to see. Depending on who you ask, it is either a Hammer or a Dragonfly Doji and appearing after a downturn or drop usually indicates a reversal. The lows today found support at the 437 handle right in the same area that the 20 Day SMA is. Tomorrow’s Jobs Report will determine if we continue filling the gap created today or break down below the 20 Day SMA. This moving average has not seen 3 consecutive daily closes beneath it since the regional bank crisis in March. Further, the 20 Day SMA typically sees the price break down and close beneath it within a 3 month period after breaking out over it. It’s been over 3 months now and the price is past due to break beneath the 20 Day SMA. For reference, the last time the SPY SPY price stayed above the 20 Day SMA this long was from May to September 2021. And we all know what happened in that final quarter of that year.
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