Attendance is light and volumes are low with yesterday’s late session rally (~35% of the advance came in the last 10 minutes of trading) likely due to systematic funds trying to take advantage of Market On Close (MOC) illiquidity.
Inflation has been easing with headline numbers near +2.5% and likely on the way to +2% given favorable base effects from seasonal adjustment factors.
Wednesday’s inline CPI report and yesterday’s improved retail sales number combined to temporarily reestablish the Goldilocks narrative that died in the wake of the 8/2 Jobs Report.
The SPX managed to close just above the post-payroll downside gap at 5447 yesterday with today’s improved retail-sales report and July-end earnings easing near-term recession fears.
Equity markets started pricing for an increased probability of recession after a large drop in ISM manufacturing and big increase in weekly jobless claims on 8/1 was followed by a July payroll miss on 8/2.
The SPX has already recovered all losses from last Monday’s yen-induced sell-off but remains below the post-payrolls downside gap at 5447 from the preceding Friday.
The SPX keeps a bearish bias at levels below 5447, with investors demanding a higher risk premium following last Monday’s volatility spike.
The upcoming catalyst-heavy week will include a number of reports including CPI, PPI, trade prices, retail sales and jobless claims.
The SPX has already experienced a functional correction of -8.5% and is now rebounding off short-term oversold levels.
A corrective phase based on concerns around weakening economic growth may only last 1-2 months if the slowdown is deemed to be short or shallow.
