Hawkish Fed The Most Likely Reason For A Correction

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In his Daily Market Notes report to investors, Louis Navellier wrote:

Hawkish Fed Correction?

Stocks are modestly lower, waiting for Fed minutes.

Stocks continue to digest the very strong first half, with the hawkishness of the Fed and other central banks seen as the most likely reason for a correction. Higher interest rates could not only slow the economy but present a higher discount rate for projected earnings.

Currently, there’s an 83% bet that the Fed increases another 25bps in July, and a 38% bet they increase again in November. Perhaps just as important are projections of when they might turn around and cut rates, which remain all over the board.

Give Me Shelter

The key element to lower inflation statistics is shelter, a major component in the calculation,  which is on a downward trend, and will see major y-o-y reductions as 2022 high rates fall off.

Thirty-year mortgages are back above 7%, which continues to squeeze affordability for new buyers, while the majority of existing mortgages are at such low rates that the trade-up market is very discouraged, resulting in a shortage of inventory for sale, keeping home prices higher than current mortgages rates would otherwise leave them.

The prospects for rates being modestly higher by year-end are more of a concern than a major risk as high 4% Fed Funds did little to restrain the stock market in the first half.

Growth Themes

The AI enthusiasm is not fading, despite the fact that YTD ETF flows show a $1B outflow in Tech. Growth nevertheless remains the theme with Value ETFs seeing $14B YTD outflows. Energy saw $12B outflows.

The attraction of higher yields continues with Treasury ETFs seeing $60B in inflows and cash-like bonds adding $13B.On the economic front, factory orders for May disappointed again, though the Redbook of retail sales was stronger, despite record consumer debt.

Today, the Fed minutes will be dissected, but it’s more of a distraction until the earning season begins, where the justification of the sky-high multiples of major tech will be under the microscope.

Coffee Beans: For the Love of BBQ

According to the National Retail Federation, Fourth of July spending on food is expected to have risen to a record $9.5 billion this year. Eighty-seven percent of consumers planning a celebration in 2023 spent an estimated $93.34 on food items. Source: Statista. See the full story here.