7.1.22: Entering the Eye of the Storm ahead of earnings season
Key U.S. and China brief market notes by Larry's Analyst Staff Team
Note to Readers: This is a new concise email newsletter format sent as part of Larry’s Investment Analyst Team communications to his public audience. To read his personal opinions, please read his separate public letters here. This email is designed to be primarily data-driven and will be sent out on Mondays/Wednesdays/Fridays. More qualitative commentary along with our actionable conclusions is provided inside our Investment Community. We have entered the 2H of 2022. Do not waste this opportunity to level up your skills.
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In our emails, we will provide the following coverage points:
Brief Snapshot of U.S. & China markets and valuation
Our Analyst Team’s Chart in Focus
U.S. & China Upcoming Economic Calendar Snapshot
Notable Chart from Media Outlets
Fear & Greed Index Recap
I hope you find this newsletter to be insightful and enjoyable! - Larry and Team
U.S and China Markets Brief Snapshot 🇺🇸 🇨🇳
(Powered by our Channel Financial Data Provider YCharts)
S&P 500 Index: 3785.38
KWEB (Chinese Internet) ETF: $32.97
Analyst Team Note:
It has been a long time since Chinese stocks have been at the top, but it was the only major equity market to post a positive Q2 return. Granted, MSCI China is still near 5-year lows but the government’s recent efforts to stabilize equity prices may be starting to work. We will continue to see how the Chinese economy develops in the third quarter. Every other major country stock index was down substantially in Q2.
S&P 500 finishes worst first half since 1970.
Macro Chart In Focus
Analyst Team Note:
“The Atlanta Fed GDPNow model is now predicting a 1.0 percent decline in Q2 US economic output. When you put that together with Q1’s -1.6 percent reading, you fulfill the technical requirement for a ‘recession’” - DataTrek Research
The chart above shows the evolution of the GDPNow estimate since the start of Q2. The trend lower has been ongoing for the last 5 weeks. Since the model takes incoming data as it is released, we can assume that economic activity has been slowing through the quarter.
Upcoming Economic Calendar
(Powered by our Channel Financial Data Provider YCharts)
U.S Economic Calendar (Upcoming Data Points)
China Economic Calendar (Upcoming Data Points)
Analyst Team Note:
ISM Manufacturing growth hits two year lows. ISM committee chair says that growth was ‘held back by supply chain constraints’ while respondents noted pricing and supply chain were their biggest concerns.
ISM employment index fell to the lowest since August 2020, suggesting that firms are still struggling to find workers.
Chart That Caught Our Eye
Analyst Team Note:
SOX is a market-cap weighted index that tracks 30 semiconductor companies.
BofA notes that “semi stocks tend to anticipate the sales downturns often 6-12 months in advance and react much faster, only to recover as consensus estimates have baked in the upcoming downturn”.
They go on to note three ‘hard’ catalysts for the remainder of the year
“Better visibility around consumer holiday demand, especially for Apple which is the largest buyer of semis and the proxy for discretionary consumer spending, China demand and supply-chain. We cannot overemphasize the importance of Apple’s ‘health’ to the wellbeing of semiconductor stocks.”
“Potential for consensus estimates to get revised down enough to reflect the potential downturn in the global economy in CY23. It’s possible we get some of these signals during upcoming Q2 results, but tight supply chains are distorting the real state of end-demand, and could cause delays in when chip vendors start to report weakness. Hence the process of downward revisions could take more time than just Q2 results/Q3 outlook.”
“Our assumption that there is some resolution to rising interest rate, China lockdowns and Europe turmoil. Admittedly more wishful thinking than hard data, these events are still critical to reducing market volatility that is key a recovery in the high beta semiconductor stocks.”
Sentiment Check
We want to take a moment to thank Interactive Brokers for being one of our Channel’s trusted Partners and to inform my audience of the special features they have given that our online friends here closely follow Chinese Internet stocks (BABA/Tencent).
Much of Larry’s audience is concerned about the US ADR issue of Chinese Stocks being delisted.
Interactive brokers allows investors to buy HK-listed shares of Alibaba, JD, Tencent, and other brand name Chinese Internet companies on the HK market. This will effectively reduce any confusion or work you will have to do in case there is the event of delisting US ADRs
Make sure to check Larry’s most recent market updates via his personal newsletter. See you in our next update.
