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Note to Readers from Larry: This week was another great week for themes that I’ve been constructive on such as United Health (UNH) and the U.S. Thrift Shops Leaders. Investors who know how to play Sector and Thematic Rotation will be able to continue building on their 2023 progress. Sticking with a theme too long may be overstaying a welcome.
You know the famous saying: All good things must come to an end.
Our recent note below is my most up to date thinking & observations on U.S. & China markets. Join our Community to find opportunity and reduce risk in 2H 2023.
Key Investing Resource: Strategist Larry uses Interactive Brokers as his core brokerage. Feel free to check out IB. I currently park excess cash (yielding 4.5%+ on idle cash) at Interactive Brokers
In our emails, we will provide the following coverage points:
FOMO rally stalls after hitting new 52-week highs. The S&P 500 (SPX) cleared 4200 in early June to break out from a 4-month bullish cup and handle (see report: S&P 500 and Russell 2000 break out). This favors new 52-week highs above the August 2022 peak at 4325, which the SPX has achieved, and projects further upside into the 4500s with the upside count for the cup and handle at 4580.
Holding 4300 to 4200 = bullish breakout and retest on SPX. The 4325-4300 and 4200-4166 areas represent upside breakout zones for the SPX and these prior resistances reverse roles to offer support. Holding the 4300 to 4200 areas on interim dips would set up a bullish breakout and retest pattern. Additional supports: 4104-4098 (mid-to-late May lows) and 4048 (late April into early May lows).
Rising 26 and 40- week MAs from 4096 to 4003 suggest a bullish trading cycle. A rising 40-week MA near 4000 means a positive cyclical trend, while a rising 200-week MA near 3820 suggests a secularly bullish trend.
Macro Chart In Focus
Analyst Team Note:
The commercial real estate sector is facing a crisis with distressed properties increasing due to high-interest rates and defaults from building owners of malls and office spaces, according to a report from MSCI Real Asset. Distressed assets grew 10% in Q1 to nearly $64 billion and could reach $155 billion as assets struggle to refinance amid tightened credit standards from regional banks and declining CRE prices. The report anticipates increased distressed asset sales and falling prices if the situation deteriorates. The most significant distress was observed in Manhattan, with $2.6 billion of distressed CRE asset sales. This crisis is exacerbated by a multi-trillion-dollar CRE debt maturity wall set to hit in the next five years.
U.S. business activity grew at its slowest pace in three months in early June, dragged down by a deepening contraction in manufacturing, according to S&P Global’s purchasing managers index. The index fell 1.3 points to 53, still indicating growth. While the services sector continued to expand, the manufacturing gauge fell to a six-month low. Inflation indicators were mixed, with factory input prices shrinking significantly while services providers' costs climbed to a five-month high. Euro area economic momentum also slowed down, with France and Germany's factories significantly affected.
Chart That Caught Our Eye
Analyst Team Note:
The pace of issuance of immigrant visas, and the number of net international migrants, have climbed to the strongest since 2016. Jerome Powell noted on Wednesday that “more labor supply is helping the labor market get back into balance, including through immigration.”
Faster population growth also means that the US could sustain a faster monthly increase in payroll employment without pushing down the unemployment rate. The broader potential implications are faster GDP growth and some softening of overall inflationary pressures.
Sentiment Check
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