What follows is an excerpt from this weekend's 280th Edition of Zenolytics Turning Points.
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MARKET UPDATE
The 100 basis point rate hike narrative lasted approximately two days, allowing the markets to reverse towards mid-day Thursday, closing out the week at their highs.
As it stands now, we are looking at a 29% chance of 100 basis point hike on July 27th. At one point Wednesday, it was up near 80%.
This should drop further in the coming week, as just this weekend, the Fed's unofficial media mouthpiece, Nick Timiraos of the Wall Street Journal, is out with an article solidifying the fact that the Fed wants to do another 75 basis points at their next meeting.
With the uncertainty of a 100 basis point move removed, the markets can now go back to focusing on the following:
1. Inflation is being tamed
2. A recession is likely to be a 2023 story, and if we do get one in this year it will be mild
3. EPS cuts are finally here, creating the necessary ingredients for low earnings hurdles that have a high probability of being exceeded in future quarters
4. The markets are basing after a significant decline, with record wealth destruction
5. Everyone is either in cash, hedged or very lightly allocated, especially to what has been working best over the past decade – Growth.
When you take all of these ingredients together, it very simply creates a potentially explosive concoction that likely results in upside that is beyond what most are currently considering possible or likely.
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