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RoboStreet – June 30, 2022
Inflation Pushes Down Consumer Spending
It finally came to where the mighty consumer-driven U.S. economy had to square with persistently high inflation, and it showed up in the May data. Household spending declined to just a 0.2% for the month and down from 0.6% in April. The combination of high energy and food prices and increasing yields put a damper on consumer sentiment readings and ultimately was born out of today’s PCE report.
It took no time for Wall Street to take down their GDP forecasts in which one service, S&P Global Market Intelligence, said they estimate gross domestic product to contract at a 0.7% annual rate in the second quarter, which ended Thursday. The Atlanta Fed GDPNow report goes on record as calling for negative -1.0% growth for the second quarter.
In reaction to the soft spending data, bond yields are lower, the 10-year Treasury yield back under 3.0% while selling picked up in energy and all across the commodity space. It’s as if there is a coming to terms with the fact that there won’t be a quick fix to the damage done by inflation. It’s going to take time which raises real concern about stagflation setting that invariably leads to a recession of some magnitude.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside the next 3 months, so my weekly updates are timely enough for you to act.
As of Wednesday, the $SPY closed lower 0.1%, at $380, at the key long-term support – $380. The value/reflationary ($VTV) closed lower 0.38%, at $132, near at the May low. The technology sector ($QQQ) closed higher 0.09%, at $283, right above the 50 DMA.
The $DXY closed higher, near the $105 level, trading above the December 2016 high. The $TLT closed higher 1.5%, at $114, and facing the key long-term resistance. The ten-year yield closed lower at 3.10%, below the key short-term support – of 3.20%. The $VIX closed higher, near the 28 level.
The $SPY short-term support level is at $380 followed by $364. The SPY overhead resistance is at $396 and then $404.
I would be a seller into the rally and have a NEUTRAL portfolio at this time. Short term the market is oversold and undergoing the bottoming process.
If you are trading options consider selling premium with September and October expiration dates.
Based on our models, the market (SPY) will trade in the range between $350 and $420 for the next 2-8 weeks.
As the narrative for a slower growth economy solidifies, I expect interest rates to top out with a rotation back into big-cap growth tech that should be led by Alphabet Inc. Cl C (GOOGL), and here is why. As a sector, software is much less dependent on supply chain issues that continue to hamper most industries. Software isn’t sensitive to commodity price spiking, interest rate increases, vast amounts of hourly wage workers, or heavy government oversight and is more necessary for businesses to add efficiencies when sales start to lag.
Google is best in class in terms of valuation, sales and earnings growth, and long-term technical. The 3-year chart below shows where $2,100-$2,200 is a range that invites buyers. The stock is a coveted holding of most institutional investors with the company having superb management and phenomenal assets that include Android and YouTube.
Of the 42 analysts on YahooFinance.com that cover the stock, the average estimate for 2022 is for revenue to grow by 15.4% to $297 billion and earnings to come in at $110 per share, implying a P/E of 20x. Very few companies of this quality and with this kind of reliable growth trajectory trade at such an attractive valuation, which is why it stands alone in my book.
When we apply our AI-powered Seasonal Chart tool to GOOGL, we get very bullish “Higher” readings for the next 20, 20, 40, and 50-day periods.
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The market is about as unpredictable today as I’ve seen since the pandemic broke out in early 2020. Inflation, the Fed, China lockdowns, and the Ukraine war – all factor into how money is being made and lost. Don’t go it alone in this investing landscape, but instead, put RoboInvestor to work today and add a big layer of confidence to your portfolio going into tomorrow. Have a safe and happy July 4th!
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside the next 3 months, so my weekly updates are timely enough for you to act.
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