Market is Flipping Between Fear of Inflation and Fear of Recession

The Fed was used to be optimistic that inflation could be tamed without sending the economy into recession. However, the Atlanta Fed’s GDPNow measure sees second-quarter output contracting by 2.1%, along with the first-quarter’s decline of 1.6% that would fit the technical definition of recession. Following by Elon Musk and Mark Zuckerberg’s warnings of the challenges of economic downturn, Suddenly, recession fear news were plastered all over the place.

The food, energy and shelter which make up about 54% of the CPI are the main inputs into perceptions of inflation. The recent market rally that started from June 17th is not only about a technical rebound due to oversold, but a reflection of weak demand the growing recession impacted, which the Fed could cut interest rates in turn soon.
The gas prices are still painfully high, although the oil that has dropped more than 20% since June but too early to call the top as its key support ($92) remain valid at this moment, however, we need to keep observing this pivot point, which will reveal the change of recession fear and how the Fed reacts sequentially.

Additionally, Big banks are going to kick off earnings season with a whimper this week. Which are expected to show growth in net incomes as a byproduct of the Fed rate hikes. Moreover, Q3 outlooks will give us another angle to see if the past year’s blistering corporate growth has slowed to a mild recession. as earnings are the denominator of the Price to Earnings ratio, any decline in the figure would increase the ratio, making stocks more expensive, hence, a further downturn that would adjust PE and make it attractive enough is possible.

From a technical perspective, the S&P 500 index is still under the key resistance, which is its 50MA. a substantial breakout will be encouraging. however, a few key weekly technical indicators have not confirmed the uptrend while the primary direction of the market remains down, it’s expected that the updated CPI data and companies’ earnings will set the tone for the market movement soon.

The S&P 500 closed the worst half year in 50 years. While our Long-term investment portfolio declined -12.62% for the June made its total return to 34.66% since the inception, May 2020 ( click for our latest portfolio performance report). our Dynamic investment portfolio that dropped -10.29% made its total return to -4.07% since May 2020. BTC downed more than 70% which is chilled to the bones to all crypto investors, a few crypto exchanges that got default made this crypto winter even worse. our crypto portfolio which allocates with 50% of BTC and 50% of ETH got a -61.13% of total return since the launched date (03/31/2021). In contrast to the extreme volatile crypto investments, over 20% of our matured structured investments received an averaged 17% of return that shows its resilience and capability to offset the volatility risk. In this case, our customized structured investments still can be a productive alternative on top of the cash, although in this bear market that the bottom remains unforeseen.

Along with banks earnings, there are more data will be released this week. The market is still in the phase of bad news is good news and good news is bad news … until some perception the Fed is accomplished. In this case, we would rather pay more attention on the market itself, which has been in an ascending triangle pattern since the island pattern was formed on June 21, and any breakouts from here will tell us where the market is moving to*.

*Disregard the gurus’ predictions about the S&P 500 only 6 months ago: WELLS FARGO: 5,300, GOLDMAN SACHS 5,100 and JPMORGAN: 5,050 ……. (https://rb.gy/9nd9sx)