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What Will Happen To The Markets In The Second Half?

What Will Happen To The Markets In The Second Half Of The Year?

Despite the bad inflation data released about 10 days ago, the markets did not want to fall. And even the expectations of a possible rate hike by as much as 100 bp. n. did not greatly embarrass the players.


▪️ Gas prices in Europe and the US have slowly gone down.

▪️ Oil prices in July also fell on average from their maximum values ​​by about 15-20%.

▪️ Similarly with prices for metals and food. Wheat from its maximum values ​​fell by 41%, corn – by 31%, soybeans – by 19%, coffee – by 14%. Soybean oil – by 33%, and our favorite palm oil – by 53%. Only the price of pork does not want to fall. But this is already internal Chinese affairs.

Cost-push inflation is slowly fading away. And the indicators of the producer price index (PPI) are very important here, which in a number of countries began to slowly decline. In the US and in several other countries, its growth has slowed down.

More importantly, inflation expectations began to decline. But the expectations of the beginning of a recession in the world are clearly increasing.

index of optimism of companies, according to S&P Global, is declining all over the world

In addition, such an important indicator as the index of optimism of companies, according to S&P Global, is declining all over the world. The world average was 22% in June against 40% in February.

▪️ In the US, the share of optimistic businesses decreased from 48% to 25%,

▪️ in China — from 31% to 18%,

▪️ in Germany – from 48% to 11%.

On the whole, the decline in the world (and, first of all, the American) economy tells us that the Fed will continue to raise the rate not so extreme. Therefore, instead of falling this week, we got an increase in the market – from July 15 to July 22, the S&P 500 rose by 7%.

What’s next?

On Friday, the market logically slightly corrected. Next week will be quite rough. GDP data for the 2nd quarter will be published soon. There are serious fears that this time the numbers will come out, to put it mildly, not very well. In this case, the markets may get nervous. I wouldn’t be surprised if the S&P 500 eventually drops 3-4% to 3820-3950.

After a growth of 7%, it is quite possible to lose up to half of this growth in order to go up again.

By the beginning of August, I will not rule out a trip even to 4100-4200.
This, however, will be the end of the corrective upward movement.

Why am I waiting for another upward movement in the markets?

  1. Technical analysis

Everything is creative here. What do tech analysts think? “If there is growth, then… we will grow up. But if we break through the support… then we will definitely fall. If only the breakdown is not false :)”

However, this pattern does offer a high chance of another short-lived-up move.

  1. Situational analysis

The heat wave in Europe will start to subside. Due to fears of a recession in energy prices, there will also be a second wave of declines. Perhaps oil will return to the 90s again. I do not rule out that the price of gas in Europe will fall below 1500 … Food – already wrote. I also look forward to lower inflation figures for July. Both PPI and CPI.

Expectations of all this may lead to some positive market movements.

Closer to the 2nd half of August-early September, I expect a serious banquet to continue down.

According to the S&P 500, I believe that the movement has a chance of about 20-25% – up to 3100-3300 by November.

Why such a hard fall? Long conversation. At a minimum, QT, along with the rate hike, will slowly but surely begin to influence the markets and the global economy.

As for the end of 2022, I believe that the S&P 500 index will approach it already at the level of 3700-3900.

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