Stocks point to short-term recovery after brutal week

📰 U.S. equity futures point to a relief rally after the S&P 500 lost nearly $2 trillion in valuation last week. European stocks opened positive after a day of limited trading volume; U.S. markets are coming back from a long weekend. The broad Stoxx Europe 600 climbed more than 1%, with companies in the chemicals, consumer goods, energy and mining sectors leading the gains. 

However, the short-term recovery rally is on shaky ground as the investor landscape remains pressured by rising interest rates, sky-high inflation, supply chain disruptions, local lockdowns in China and a deepening energy crisis in Europe. This is compounded by rising inventories at many companies – a risk factor that still receives too little attention. Nevertheless, I believe investors are currently buying stocks at reduced prices after last week's sharp sell-off. 

Historically, bear markets usually take time to find a bottom, especially when they are accompanied by a recession, as was the case during the 2008 financial crisis. Even though U.S. President Joe Biden says a recession in the U.S. is “not inevitable,” I see a recession coming simply because of the destruction of demand (from tight monetary policy and sky-high inflation). Europe is certainly worse off, as the energy situation remains very uncertain and could have a catastrophic impact on the European economy, which is energy intensive but reliant on energy imports.

I still see the markets declining in the medium term, but expect the short-term recovery to remain for today – we will then see volatile markets in the coming sessions. Equity markets will continue to struggle to recover and see profit taking. I see more headwinds ahead for corporate earnings and expect several profit warnings from some of the largest companies.

Oil prices continue to be on the upswing as supply remains tight due to sanctions against Russia following the invasion of Ukraine. At the same time, we see high demand for fuel due to high airline activity, relatively high road traffic (despite sky-high fuel prices), and the easing of some lockdown measures in parts of China. Supply concerns are unlikely to ease until the war between Russia and Ukraine is settled (which is very unlikely) or until oil production increases sharply in either the U.S. or by the OPEC.

The USD is down after recent gains. The EUR and AUD are benefiting from hawkish comments from the ECB and RBA, respectively. The JPY is again hovering near a 24-year low (against the USD) and is weakened by the contrast between a very dovish Bank of Japan and an aggressive (hawkish) Fed.


👁 ROB'S MARKET OVERVIEW:

🇺🇸 US Markets ↕️/↗️
Cyclical Stocks ↕️/↗️
Tech/Growth Stocks ↗️
Financial Stocks ➡️
Energy Stocks ➡️/↘️

💱 Forex Markets 
EUR, AUD ↗️
GBP, CHF ➡️
USD ➡️/↘️
JPY ↘️

⚒ Commodity Markets ➡️/↘️
Oil prices ➡️/↗️
Gas prices ↘️
Metal prices ➡️
Precious Metals ➡️/↘️

⚡️Crypto Market ➡️/↗️

(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)

Yours, Robert 📉📉📈🔍