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Markets Start Short Week in the Red

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Tuesday, July 5, 2022

Although we saw market activity recover and finish in the green last Friday — the first trading day of calendar Q3 and the second half (2H) of 2022 — trading volume was typically light ahead of a long Independence Day weekend. That said, the Dow blue-chips have finished in the green in two of the past three sessions.

Can we keep it going today? Early indicators are: no. The Dow is currently set to open more than -300 points lower, the Nasdaq is around -150 and the S&P 500 is -40 points. In this holiday-shortened trading week, we’re looking to change the bearish pattern of four of the past five weeks trading into the red. This is a main reason our 1H this year was the worst performer since Robert Redford was a major sex symbol.

This is not to say we can’t turn things around — there are lots of data points coming out this week, and with enough positive news we may, just may, see momentum shift. Between Factory Orders later this morning, PMI and ISM Services, JOLTS, FOMC Minutes, Weekly Jobless Claims, and Monthly Nonfarm Payrolls reports are all due at some point before the end of the week.

Even today we see some signs of what may be construed as progress: there is open talk that the Biden administration plans to remove Chinese tariffs, in order to bring down inflation strain in the U.S. economy. Presidents Biden and Xi are expected to have a virtual meeting about this over the summer. That said, Barclays expects only a one-time -0.3% drop in inflation from a move like this, which would scarcely move the needle on overall inflation metrics.

Still, it’s worth pointing out that China re-entering the global economy in ways it hasn’t since prior to the Covid pandemic ought to add a notable boost to supply chain issues, etc., which would then bring back better growth outlooks across a wide spectrum of industries. Just look at Tesla (TSLA - Free Report) , which is reporting a down quarter for deliveries, largely due to a lack of Chinese orders. Turning these sorts of things around will be key to a healthy second half of the year.

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