Good morning, team. I’m Phil Rosen.
As often is the case, all eyes will be on Jerome Powell as he takes the stand on Capitol Hill this afternoon before the House Financial Services Committee. He’ll follow that up Thursday before the Senate Banking Committee.
Even after last week’s Fed meeting and Powell’s press briefing afterward, it wouldn’t be surprising if he said something market-moving again over the next two days.
For today, let’s check in on stocks.
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1. The S&P 500 is up more than 14% this year. But with fresh recession calls emerging on a daily basis, the outlook for equities keeps getting more and more divided.
Morgan Stanley, for example, has adopted a downbeat view for the months ahead.
The present rally is about to stumble thanks to a bearish cocktail of mood, earnings, and falling inflation.
“Investor sentiment and positioning,” the firm’s strategists said Tuesday, “has turned 180 degrees at an inopportune time, in our view.”
With the latest Consumer Price Index clocking in at 4.0% annually and poised to ease further, that could pose a potential headwind for corporations.
Falling prices, Morgan Stanley explained, can cut into revenue growth and weigh on earnings.
Another bad sign for stocks: $1.2 trillion in Treasurys will be issued over the next six months, and that can put pressure on liquidity.
“This should begin to hit asset prices by the end of this month and carry into the fall,” Morgan Stanley strategists said. “In addition to this domestic dynamic, we think global M2 (in USD) growth is also likely to flatten out and possibly fall again, adding one more element to the cocktail that could surprise newly minted bulls.”
As the bank’s chief US stock strategist Mike Wilson put it, investors could ultimately be in for a rude awakening as growth stagnates.
Now, convincing as that may sound, there is no consensus on Wall Street.
Fairlead Strategies’ Katie Stockton forecasts upside, for example, citing a bullish signal that just flashed.
In a note Tuesday, she pointed out that the S&P 500 closed higher for the fifth consecutive week.
That was accompanied by a confirmed breakout in the NYSE Cumulative Advance-Decline line, a technical indicator that measures how many individual names are participating in a given trend.
“This is something that we were looking for to essentially affirm the strength of the breakout in the major indices, and now we have that as indicative of expanding market breadth, something that can contribute to the sustainability of the uptrend,” Stockton said. This line of thinking suggests good news for bulls, and runs counter to Morgan Stanley’s bearishness.
To Stockton, the S&P 500 could soon trade as high as 4,510, or about 3% higher than current levels.
Which view here do you think is more likely? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
In other news:
Rick Bowmer/AP Photo
2. US stock futures fall early Wednesday, as investors brace for Powell’s testimony. Meanwhile, in London, traders are expecting further Bank of England interest-rate hikes after another shock inflation reading. Check out the latest market moves.
3. Earnings on deck: KB Home, Patterson Companies, and Winnebago Industries, all reporting.
4. Six market strategists broke down how to invest in the current stock rally. It’s possible equities run off to all-time highs in the months ahead — and these are the 10 trades to make to capitalize on the upside.
5. China’s gold-buying boom is slowing down dramatically. Chinese retail gold saw a 24% gain in May, down from a prior peak of 44% year over year, Bloomberg data shows. The country’s economic woes are starting to weigh on demand.
6. A collapse in used car prices could help drive inflation below the Fed’s target rate. The Manheim Used Vehicle Value index dropped 3.2% in the first two weeks of June, and it’s down 9.4% annually. To Fundstrat’s Tom Lee, this trend suggests the complete opposite trend of CPI data.
7. More Russian oil than ever before is heading to China. Crude exports hit 2.29 million barrels a day last month, up 15.3% compared to the same time last year. Meanwhile, Europe has almost completely stopped buying Moscow’s barrels.
8. Evercore strategists just listed their favorite stocks that could keep riding recent momentum. Investors can still rake in profits if they play their cards right, according to the firm. Here are 16 names on their radar now — and the five warning signs to look out for.
9. Tight supply is driving home values higher. Home affordability could be a significant problem for the foreseeable future, especially for first-time buyers. Here are the price and inventory changes of each state over the last year.
10. Lumber prices jumped Tuesday after an unexpected spike in housing starts. The key stat soared more than 20% in May, and single-family starts reached an 11-month high. Details on the key building commodity here.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.
Edited by Jason Ma in Los Angeles and Hallam Bullock (@hallam_bullock) in London.