The price patterns of the indexes remain remarkably bullish despite the bond yield inversion suggesting a recession is around the corner.  We have a relatively light economic and earnings calendar this week, spotted with Fed speak and the release of the minutes on Wednesday.  So, while I’m rooting for a nice week-long restful consolidation, I suspect we will still have challenging price action and a sensitivity to the geopolitical news cycle this week. 

Chinese tech stocks rallied during the night, with the HSI closing up 2% as the real estate crunch worsens.  However, this morning, European markets seem pensive with very modest index moves as more Russian sanction talks evolve.  U.S. futures are also cautious as the inversion of bond yields worries investors.

Economic Calendar

Earnings Calendar

We have just three confirmed reports as we begin the first full week of trading in the 2nd quarter.  Those reports include ATC, INCR & SRAX.

News & Technicals

JPMorgan CEO Jamie Dimon identified three forces that are likely to shape the world over the next several decades: a U.S. economy rebounding from the Covid pandemic, high inflation that will usher in an era of rising rates, and Russia’s invasion of Ukraine and the resulting humanitarian crisis.   “They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead,” he wrote.  “The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy — and it could easily get worse,” Dimon wrote.  That’s because of the uncertainty about how the conflict will conclude and its impact on supply chains, especially those involving energy supplies.  More than 9,000 U.S. flights were delayed over the weekend.  Southwest Airlines was the hardest hit and had started Saturday with a backend technical problem.  In addition, due to storms, air traffic control slowed or paused traffic in Florida on Saturday.  On the drought-stricken land where Pinal County farmers have irrigated crops for thousands of years, Nancy Caywood stopped her pickup truck along an empty canal and pointed to a field of dead alfalfa.  “It’s heart-wrenching,” said Caywood, a third-generation farmer who manages 247 acres an hour outside of Phoenix.  An intensifying drought and declining reservoirs across the Western U.S. prompted the first-ever cuts to Arizona farmers’ water supply from the Colorado River.  Amazon workers at a Staten Island warehouse voted to unionize, the first time that’s happened at one of the company’s U.S. facilities.  The Amazon Labor Union, a new organization, now has to work trying to negotiate a collective bargaining agreement with Amazon.  Tom Kochan, a professor at the MIT Sloan School of Management, said, “Amazon will have to reassess its labor relations strategy.”  Treasury yield inversion continues to be a concern this Monday morning, with the 2-year trading at 2.4384%, the 5-year at 2.5553%, the 10-year ticking up slightly to 2.386%, and the 30-year slightly higher at 2.4499%.

Although the bond yield inversion suggests a recession is around the corner, the index charts continue to hold bullish patterns.  While many of the critical economic metrics point to a slowing economy, businesses continue to hire rapidly.  Unfortunately, commodity prices continue to rise, pressuring the consumer and likely forcing the hand of the Fed to act aggressively in May.  We may learn more about their intentions this week with several Fed speakers and the release of last month’s minutes Wednesday afternoon.  We will also have to keep an eye on China as the real estate crisis worsens despite the government’s effort to mask the economic damage.  Finally, with light economic and earnings calendars this week, expect the market to be sensitive to the geopolitical news cycle.  It would be nice if the price action could rest in consolidation the entire week but don’t be surprised if the last quarter’s volatility spills over to keep us guessing.

Trade Wisely,

Doug