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Markets Reach 200-Day Average; Retail Sales On Deck

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Market indices put together a rally mid-day after weak housing data opened our session lower. Earnings beats from Walmart (WMT - Free Report) and Home Depot (HD - Free Report) helped prime the pump a bit, but the recognition that weaker housing metrics are just what the Fed wants to see in order to bring down inflation helped bring investors to getting happy over future interest rate hikes.

But then it became clear sentiment felt gains were going too high, too fast, and we saw a big swing down — to near zero-balance for the S&P 500 and the Nasdaq, while still in the green for the robust Dow blue chips. The Dow finished the day surpassing 34K for the first time in three months and just a week after pushing past 33K, closing +239 points, or +0.71%. The S&P and Nasdaq split breakeven, +0.19% and -0.19%, respectively, while the small-cap Russell 2000 was also flat, -0.03% for the session.

So from our mid-June lows, market participants have sent the major indices much higher; we’re now trading at the 200-day moving average. This may be the inflection point the markets were feeling when they rolled back the intra-day highs this afternoon, and anyway it forges a new question going forward: keep the bull rally moving higher or cool our jets until more data can illustrate a stronger economy in the months ahead.

We won’t have to wait long: July Retail Sales are expected to pull back from +1.0% in June (though only -1.0% in “real” retail sales) to only +0.1% tomorrow morning when the latest monthly report drops. The solid June number was a nice bounce-back from May’s -0.1%, the first negative print since December, which then bounced back to cycle highs of +2.7% in January. And if we’re looking to give the Fed more information to help convince them to go easy on raising interest rates, then lower consumer sales for last month would be a nice data point.

In short, the stock market is living up to its reputation of being a forward indicator of economic conditions. While still more than -6% year to date, the Dow and Nasdaq are now back to levels not seen since late April, early May for the S&P. Investors made short work of making up this great maw of 1H-22: the S&P is -10% year to date, the Russell -11% and the Nasdaq is -17% — there’s still some work to do, but with forward-looking conditions remaining murky, the question becomes: How long should it take to finish the job?

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