This Is What Overachieving on Employment Feels Like
What the Fed, Fedex, and Cava are telling us about this bull market
Happy Belated Father’s Day to all the fathers!
After 2 weeks of travelling, I finally had a chance to catch up on the markets. Since my time Colombia, not much has changed.
A few subscribers have reached and asking if and why the market could come down. The short answer is the same as I posted on June 6. The markets still have a bullish bias. The next few weeks are seasonal weaker.
Anything that has had huge returns recently may stop going up or come down (think Nvidia, Nasdaq, Large Technology). It would be healthy and natural for the major US stock market indices to drop 3-5% in this bull market. But no need to anticipate a drop and start changing portfolios or investments off of a possible fear.
Instead of guessing, let’s consider these events: the Fed announcement, FedEx earnings, and the recent CAVA IPO. All the information we need is in the market behavior. It shows strong underlying investor demand.
First let’s look at the S&P 500 chart since it best represents the US market. The prices are a map of where the markets have been and where they might go next.
The horizontal green lines are support/resistance levels for the S&P 500 ETF (SPY). These are areas where prices were “stuck” in the last year. Based on these I mentioned on May 22nd that the S&P could rise another 5% in 3 months. It moved there in 3 weeks!
Without earnings to power investor enthusiasm, the S&P might get stuck here until earning reports start again in mid-July.
Now let’s consider the Fed, Fedex, and CAVA.
The Fed - Bark, No Bite
Powell provide Congressional testimony on Tuesday. The market fell and then came back today - it just didn’t do much. Powell has a bark but no bite any longer. Plus his testimony seems a bit ridiculous at this point.
It is all double talk. CPI is coming down but not enough. We are overachieving on employment but the economy is too healthy. No one is taking this seriously any longer.
What investors see is CPI slowly coming down. The Fed is fixated on the absolute number. Investors are fixated on the trend.
And eventually consumers will stop spending so much on travel, services, and self-care. This is make-up spending from years of lockdown. We have seen this play out in other areas of the economy already.
FedEx
FedEx reported a small slowdown in shipments last quarter. Again, there has just been a shift in spending. People are buying less things and are buying more experiences. Not a surprise.
More importantly. Look at the massive drop in the price in the FedEx price chart below. The price dropped after earnings (big redline in the middle of the chart). In 2 days, the price has come right back to the price before earnings.
Interpretation? Investors are not worried about these numbers. Let’s move on.
CAVA
The IPO drought is finally broken. Scared market investors do not rush out to buy initial public offerings. Bullish investors do.
Shares of Mediterranean restaurant chain Cava soared as much as 117% in its market debut Thursday.
Bottom Line
This all looks healthy. Every uptrend needs skeptics and doubters; otherwise, they would not be anyone left to buy. Without earnings news, the market bounces around. Daily market events will be limited for a few weeks.
The uptrend is not just a US phenomenon either. Europe, Latin America, and Japan also have been running higher. If you have money to deploy, it might make sense to see if the market settles down after such a massive run.
Without earnings to report on, business journals are going to dig up exciting fears so you can doom scroll through articles. Don’t read them, the are bad for your health!
Enjoy the summer!
If you have any questions, leave a comment. Thanks for reading Embrace the Chaos! Sharing perspective that makes sense.
Much effort and research went into making this 4-minute read. If you found it insightful, please help me out by clicking the like button and sharing this article.
- Vikas Kalra, CFA