It seems fitting that the S&P 500
SPX,
ended its 248 trading-day stint in a bear market on the same day that a report showed initial jobless claims at its highest level in nearly two years.
Up is down, down is up, same as it ever was on Wall Street. Main Street has finally capitulated, judging by the American Association of Individual Investors survey that found above-average optimism for the first time since February. So … look out below?
A team led by Nikolaos Panigirtzoglou, global market strategist at JPMorgan, gives credence to that worry in an update of a piece done earlier in the year, looking at the role of inflation uncertainty in the fair value models for both the 10-year Treasury real yield and the S&P 500 index. It’s a very complicated calculation, but we’ll get to the conclusion.
“Bond markets are still pricing in a sustained period of elevated macroeconomic uncertainty, even if there has been some modest decline over the past three months. By contrast, equity markets look ‘priced for perfection’ with the S&P now above a fair value estimate looking through the rise in macroeconomic volatility since the pandemic,” the strategists say.
If equity markets were to price in a rise in inflation volatility to levels that the bond markets do, it would imply a 20% downside from current levels, the JPMorgan strategists say.
The strategists don’t say what it would take for the equity market to be as worried as the bond markets. But you don’t have to look far to see an event that could shake markets. Even permabull Tom Lee says next week “might be the most consequential week for the rest of 2023,” owing to the inflation data out Tuesday, as well as the Fed decision. Granted, Lee is of the view that inflation is tracking lower than consensus expects, but note the wave of inflation surprises to the upside outside the U.S., the latest coming from Norway on Friday.
A 20% fall from a peak, by the way, marks the definition of a bear market. And the short bull market since 1932 was the last one, which started shortly after the onset of the global pandemic and lasted 21 months.
The market
U.S. stock futures
ES00,
NQ00,
drifted lower. The dollar
DXY,
edged up, and the yield on the 10-year Treasury
TMUBMUSD10Y,
was 3.72%.
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The buzz
Tesla
TSLA,
said it’s going to open its fast-charging network to General Motors
GM,
electric vehicles.
Nio
NIO,
posted results below Wall Street estimates, as the Chinese EV maker said second-quarter revenue would come in well below analyst expectations.
DocuSign
DOCU,
reported results well ahead of Wall Street estimates as its current quarter sales outlook also topped estimates.
Former President Donald Trump said he’s been indicted over records handling.
Turkey appointed a former First Republic executive to lead its central bank, as the lira continues to tumble against the U.S. dollar
USDTRY,
Campbell Harvey of inverted-yield curve fame says the odds of a U.S. hard landing are rising.
Best of the web
Apple’s new headset is just the latest sign of a dystopian future of social isolation.
China’s inflation problem is that it has none.
Australian airline says it will no longer require its female employees to wear heels.
Top tickers
Here were the most active stock-market ticker symbols as of 6 a.m. Eastern.
| Ticker | Security name |
|
TSLA, |
Tesla |
|
GME, |
GameStop |
|
NVDA, |
Nvidia |
|
NIO, |
Nio |
|
CVNA, |
Carvana |
|
PLTR, |
Palantir Technologies |
|
AAPL, |
Apple |
|
MULN, |
Mullen Automotive |
|
AMC, |
AMC Entertainment |
|
BUD, |
Anheuser-Busch InBev |
The chart
Speaking of jobless claims, Bank of America strategists led by Michael Hartnett point to this chart showing the availability of loans to small businesses versus initial jobless claims, showing what it calls the quiet credit crunch. The strategist say the fresh decline in small business credit availability, as claims turn higher, interrupts the “no recession” in 2023 narrative. The next small-business optimism index release from the National Federation of Independent Business is due Tuesday.
Random reads
The song goes they paved paradise and put up a parking lot, while in France, prehistoric stones were destroyed for a home-improvement store.
‘Cracker Barrel has fallen.’ Southern restaurant chain criticized for inclusion campaign.
These Taylor Swift fans have become liquidity providers in the secondary market.
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