Stock Market-Fed-Rates to Kill Rally? Energy-Metals-China Turn? Bank Earnings? Read More!
July 8 2023 Option Professor Opinions & Observations
Hello Everyone! We got a Jobs Report Friday that initially was viewed as a turn down in the Labor Market BUT by the end of the day, traders realized the WAGES are UP, Hours Worked UP and 3.6% rate is still at 50 YEAR LOWS! The conclusion is the Fed has more to do and sans a “event”, the Rates will stay elevated.
The next realization by traders was that valuations on AAPL & MSFT as examples, had gone from the 20’s to the 30’s P/E’s since the beginning of 2023. Along with many others, this mean that this rally was FUELED by MULTIPLE EXPANSION. In a world of 5%+ Fed Funds rate, the VALUATION should be CONTRACTING toward 15 or 16 not 20 or 30! This week we start EARNINGS SEASON and companies better put up or shut up! This week, Friday, we start with BANK EARNINGS with JPM, C, First Republic and others the following week we get GS, BAC, and MS to name a few. We will see how the REIONALS are doing with many having to give away their profit center of Net Interest Income (translation the bank pays you NO INTEREST on your money and EARNS INTEREST for themselves). Not a bad scheme if you can get away with it; however many have to pay MARKET RATES to retain nervous depositors. No loan Growth?
The world may be CHANGING so keep your eyes open. Energy prices are benefiting from DEMAND VS SUPPLIES in that Saudi & Russia are cutting and inventories appear LOW. Energy futures are in a condition called backwardation which translated meaning they pay more for immediate delivery than deferred suggesting tight supplies. INFRASTRUCTURE may be a key word in the months ahead and if so FCX ect., INDUSTRIAL stocks and metals may go on a RUN. Gold & Silver have been SOLD off BUT if CPI runs LOW this week (expected to as last year’s HIGH numbers is removed), Yield ease, Dollar drops, they could run. China has been a busy bee with restrictions on 2 key metals, Gallium used for Radar Solar panels, TV/phone displays and compound chips. Also, Germanium used in Fiber optics, night vison goggles, and space exploration/satellites. CHINA also cam down with BIG fines on the tech giants BABA, TECHY, PDD, and BIDU and this was viewed as a sort of culmination as China big caps (FXI) SPIKED up on the news.
BUT, all these markets have SIGNIFICANT technical resistance ABOVE current price, this week promising.
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