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Fed Certainty, Not Earnings, Drove Stocks Rally

Published July 20, 2022

The following is an amended form of the Daily Contrarian briefing from July 20. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Stocks put in a major rally yesterday. The Nasdaq gained more than 3% on the day and S&P 500 was up 2.8%.

The bounce is being attributed to earnings, but most of these were not that great and several companies also scaled back their outlook for the rest of the year. Then there was Netflix (NFLX), which rallied after hours despite announcing a loss of almost 1 million subscribers. The stock rallied because it had previously predicted a loss of 2 million. (Note to streaming companies: Just predict a huge loss of subscribers, more than twice what is likely then sit back and watch your stock rally).

Remember that markets hate uncertainty more than they hate bad news. The Federal Open Market Committee, or FOMC, meets next week to decide on interest rates. Talks of a 1% rate hike that spooked markets after last week’s inflation reading have given way to the far more likely reality of a 0.75% hike — and that is now being accepted as gospel. The source for this appears to be a speech by Fed governor Chris Waller, which has led the Wall Street Journal to all but declare the 1% hike to be off the table.

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Oil Prices Will Rise to $200/Barrel: Salem Abraham (Szn 4, Ep 19)

Published July 18, 2022

Salem Abraham of Abraham Trading Co. joins the podcast to discuss his bullish outlook for oil, predicated on supply issues and under-investment.

Content Highlights

  • The shift to renewable energy is real, even in the Texas panhandle. But the transition is still in the very early stages. Oil and gas are still needed — so are investments in infrastructure (4:13);
  • Worldwide drilling has yet to recover to pre-Covid levels. This will lead to $200/barrel oil and $10 gasoline prices (7:07);
  • “I think we end up with stagflation,” but even that will not solve the supply issues (8:50);
  • Natural gas “is still a great investment” (14:14);
  • The benefits of green hydrogen (16:31);
  • There are more pipelines than popularly believed in the U.S. and they are actually more precarious than transmission lines (19:52);
  • Background on the guest (29:36);
  • Liquid alternatives and the need for better diversification (31:37);
  • The Federal Reserve has to regain credibility after the ‘transitory’ talk. The Fed will blink, eventually… (36:02);
  • Unrelated: Notre Dame will not join the Big 10 for football, says the alumnus (39:49).

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Assessing the Precarious State of Markets With Marc Chandler (Szn 4, Ep 18)

Published July 6, 2022

Marc Chandler, chief market strategist at Bannock Burn Global FX, joins the podcast to discuss the precarious state of markets and what he is expecting from upcoming releases of key economic data. He also provides a pair of investment ideas for these times, with the understanding that nothing here is to be taken as investment advice.

Content Highlights

  • The coming week brings a number of crucial economic data around employment and inflation. What to expect (2:50);
  • “I don’t think we’re in a recession yet. But I think it’s going to be hard to avoid one.” Cracks are appearing and these warrant attention (3:51);
  • Weekly jobless claims (up Thursday) can be a leading indicator of recessions (5:30);
  • Non-farm payrolls are up on Friday. What to expect (11:34);
  • Core inflation is actually receding from highs, but the Fed can’t (and more importantly won’t) declare victory over inflation quite yet (14:42);
  • Recent days have seen a shift in market sentiment, to where a rate cut is starting to be priced in (17:43);
  • What is an investor to do here? The guest has two ideas, at opposite ends of the risk spectrum (25:23);

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