Markets decreased last week. As CPI came in higher than expected and bank earnings had an impact on the market.
Cracks starting to show in the housing market? Let’s take a look.
Earnings season has begun. Big banks reported last week, next week we got some big companies coming out with earnings, we expect volatility. Let’s have a look at the upcoming earnings.
The Charts:
The S&P500 index ETF (SPY) saw a decrease of 0.91% over the last week. The market remains choppy in this downward trending channel. Same as last week upper resistance remains the $394.17 level, which could provide significant resistance. Keep in mind that the trendline resistance still hasn’t been broken either. On the downside we have a support at the 2022 low around $362.17 if this level breaks we have to look out for a further decline towards the $350 mark.
The QQQ decreased by 1.18% this week. QQQ had a significant rally at the end of the week, in the beginning of the week we went down significantly. We bounced of the $280 support and are now close to touching the green trendline again. A break above this level could bring us to the $300 psychological level and even further towards the red trend line resistance. The red trend line resistance is intact since December 2021. On the downside we need to look out for the $280 support again and even the $267 level if we see a significant decline next week.
The IWM saw a decrease of 1.42% last week. IWM had a rough week. It was the worst performing of them all as it wasn’t able to continue its upward trend of last week. Similar to the QQQ, we saw a nice rally to end the week. Resistance lays at the red trend line resistances. A break-out above these resistances could bring us towards the $188 resistance level. As you can see we started to form a new declining trend line resistance in the middle of March. Immediate support lays around $170. If this level doesn’t hold, we could retest the 2022 low and decline even further.
Market News
CPI - hotter than hot!
CPI came in at a whopping 9.1% versus the 8.8% that was expected. Most people expected inflation to come down as oil prices decreased in June. Although CPI is a lagging indicator it is concerning that inflation came in higher than expected again this month. Furthermore, this gives the FED a higher chance of raising rates by 100bps next time. Chances of a 100bps rate hike increased significantly after CPI was announced. On a positive note, core inflation (which excludes food and energy prices) came in at 5.9% versus 5.7% expected, although this is still higher than expected, it looks like core inflation has peaked in March when it came in at 6.5%.
It looks like we might be getting into stagflation as nominal sales are up, but people are buying less products. In layman's terms: a year ago, buying 3 apples costed you $2. Now buying 2 apples costs $2.25, people are still buying apples, they are just buying less apples with the same money.
Weakness in the housing market?
As seen in the graph below, a lot of homes that are listed for sale have been cutting prices over the last month. We believe this is concerning as this shows a weakening in demand and people that are selling clearly are looking to sell quickly.
Furthermore, this data is the highest since Redfin started tracking this back in 2015. In addition, mortgage payments increased by 43.5% compared to last year. We believe this makes an average house pretty much unaffordable for the average American household. This will impact the demand side, afterwards sales will collapse. Latest stage prices will significantly decline. This is the exact same pattern as we saw during the last housing bubble.
Earnings season has begun!
Last week we had some interesting earnings. As mentioned last week the big banks were reporting with JPM and others coming with fairly weak earnings, but mentioned they were building reserves. JPM even went as far as cutting its stock buy back program. In addition TSM showed resilience as they came out with solid earnings.
Next week we got some big guns reporting earnings. In particular ASML, Tesla, Netflix, Twitter, Johnson and Johnson and AT&T are the most interesting ones in our opinion. We expect the market to remain highly volatile as earnings can have a significant impact.