21 Jun HAS A CAPITULATION OCCURRED?
Last week was a universally brutal week. According to Sundial Capital research the recent decline is one for the record books. In five of the seven sessions through Thursday, at least nine in ten S & P 500 stocks dropped, a record run of widespread losses.
Regarding asset classes, from Treasuries to corporate bonds and commodities, everything was down for a second straight week, a stretch of sweeping declines that has not happened since the 2013 taper tantrum.
There are only eleven stocks in the S & P 500 that are posting a positive return in June, none more than 5% while 138 are down by more than 20%. The S & P 500 closed at its lowest level Friday since December 2020, down about 23% YTD.
Talk about a total repricing of securities based upon central bank policy.
Some believe a capitulation has occurred. It is my firsthand experience markets can fall much further than anyone expects, and a bottom only occurs when all stop stating one is at hand.
Bloomberg writes that compared with the last two bear markets that were associated with runaway inflation, the current one, at six months, has a long way to go. The 1980-1982 downturn lasted about 20 months ad did the one between 1973 and 1974.
Equities were mixed on Friday following the reiteration of remarks by Fed Chair Powell “that the central bank is acutely focused on returning inflation to 2% and that another 75 basis point hike or 50 basis point move was likely at the July meeting.”
Commenting about oil, the International Energy Agency (IEA) stated Friday “global oil supply may struggle to keep pace with demand next year and the release form the SPR may be the final cushion that may have kept a lid on prices, a release that ends in November.”
The IEA quantified the amount of oil that is being released—one million barrels per day since mid-May to November—is more than the production of most medium sized OPEC countries.
The SPR which was designed to be used for emergency purposes only, will shrink to a 40 year low of 358 million barrels by the end of October down from almost 650 million barrels about a year ago.
And then there is housing. Mortgage rates are now at the highest rate since 2008, almost double from six months ago. Last week’s surge was the greatest one week increase since 1987. According to Bloomberg, builders are now slashing prices in quick fashion as “demand is falling off a cliff.”
This week several housing indicators are released. What will this data suggest? Will the data be viewed as stale not reflecting today’s conditions?
Speaking of which, the economic calendar is relatively light comprised of a sentiment survey, a manufacturing index and several housing statistics.
Last night the foreign markets were up. London was up 0.85%, Paris up 1.45% and Frankfurt up 0.94%. China was down 0.26%, Japan up 1.84% and Hang Seng up 1.87%.
Futures are up about 1.8% on the belief the market is vastly oversold. The 10-year is off 11/32 to yield 3.28%.