September 16, 2022
Cycle: The first two weeks of September always include a number of sell-side industry conferences where companies provide updates/trends post-CQ2 earnings season. A good percentage of S&P 500 companies presented with aggregate commentary sounding similar to what we heard in July/August. With this backdrop, yesterday’s negative profit warning from FDX seems like an outlier, but cyclically-sensitive chemical companies EMN, DOW and HUN also issued negative preannouncements this week.
Catalyst: Year-end ’22 Fed rate expectations sit at ~4.18%. Next Wednesday’s Fed meeting also includes an updated Summary of Economic (SEP) projections and dot plot. The last update in June resulted in a 3.5% median year-end ’22 dot. Three major inputs in the SEP (GDP, Unemployment and headline PCE inflation) are now tracking at/below the Fed’s outlook from June.
SPX: The S&P 500 is currently trading below technical support at ~3900. The close matters most, but a break below ~3890 opens the door for a full retest of the June low of 3660. A break below 3660 would likely lead to capitulation selling that’s led by the most liquid, loved and over-owned names. The ultimate low following capitulation is usually preceded by 2-3 days of momentum divergence and relative outperformance from the RTY (small cap) and SPW (equal-weight SPX).