[Market Outlook] Mixed Economic Signals

9 Ways to Profit Using MarketGauge [Company Logo] Mixed Economic Signals 9 Ways to Profit Using MarketGauge By Keith Schneider and Donn Goodman [image] It was a good week and an exceptionally good month in the markets. The S&P 500 was up 9.1%. This was the best July since 1939. Conversely, it came on the heels of the 3rd worst June ever, down 8.4%. We have continually illuminated for you that the market is made up of three important inputs. A change, positive or negative in any of these inputs, can result in the market rallying or taking a nosedive. These inputs are inflation, interest rates, and earnings. Let’s see what might have fueled this recent relief rally: 1. Inflation: Negative and remains elevated. Inflation is not coming down anytime soon. On Friday, the Personal Consumption Expenditure Index (PCE) came out with a much higher than expected annualized increase of 6.8. This is the highest PCE since 1982. Ending in June, energy costs rose 43% for the past 12 months. Food costs in June showed a rise of 10% for the past 12 months. Grocery store costs in June showed a rise of 12% for the past 12 months. However, energy and some commodities have come down, which served as a near-term positive for the stock market. Certainly, Friday’s market action was not disturbed by these very high numbers. 2. Interest Rates: Positive and trending down. This has clearly been the surprise recently especially given the Federal Reserve raising their key lending rate this past week by 75 basis points. After hitting 3.09% in early July, the 10-year US Treasury rate came down to 2.67% this week. TLT (20-year bond funds MarketGauge frequently uses) have rallied from 112 to 117 at the end of the month. The rise in long-term rates reflects increased concern over future economic weakness, which was verified by the contraction of quarterly GDP numbers announced this past week. Many economists are forecasting a recession on the horizon (if not already… which is currently being debated). [image] High Yield bonds (junk), an often-used proxy for risk on assets, had the best month (up 5.1%) since October 2011. See charts below: [image] [image] 3. Earnings: Good and trending higher. 175 companies released their earnings this past week. Some good (Apple & Amazon beat estimates) and some not so good (META, MSFT, and GOOG all missed). As we have mentioned in most of our recent commentary, earnings are expected to grow by 4% or greater during 2022. According to FactSet, 56% of S&P 500 companies have reported their Q2 2022 results with 73% beating their earnings and 66% beating their revenues estimates. Until we see a decline/contraction in earnings across the board, the economic weakness caused by rising Fed borrowing costs and higher inflation may be muted. Last week (and throughout July), we told you our indicators were improving and that we had entered Risk On in several of our algo based investment strategies. In our coaching and certainly Mish’s recent appearances on National TV, we pointed to our indicators suggesting we were in for a mean reversion trade. We were, at worst neutral on certain sectors and, at best, urging your attention to areas such as Consumer Discretionary and Technology. Here are a few of Mish’s recent TV appearances which echo the more positive sentiment. (Remember that we told you she had suggested purchasing ARKK a few weeks back - a bold forecast that the market could and would go into a Risk On rally mode). Use the links below to continue to the full article and see: - Mish’s analysis from several media appearances - Economic data fueling the debates about recession, inflation and more - Seasonality data covering the odds of bullish/bearish moves in August and midterm years - 9 suggestions for actions you can take to navigate the current markets - The weekly Big View summary analysis - Keith’s weekly market analysis video [Click here to continue to the FREE analysis and video.]() [Click here to continue to the PREMIUM analysis and video](. Best wishes for your trading, Keith Schneider CEO MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](=), Rob Quinn. 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