Peak bearishness 'might' have been what we had in the past couple weeks, as even our fairly-seasonal late June / early-mid July rebound was dismissed by so many. Now of course the 'real' secular rally won't be recognized at least in mega-caps until (or unless) the Fed pivots away from restrictive policies.

Pixabay

One reason for lack of belief in that is that the 'run' of higher rates would have to be incredibly lengthy to achieve a true-neutral balance. The great question of whether the Fed is more fearful of recession versus inflation will continue to bedevil markets and probably politics and the Fed itself.

We believe the recession has been ongoing and you don't foster slow growth just by inflationary policies or printing more money. However, 'Government' of course has to be concerned about society, and recognize that prices aren't at all likely to retreat to where they were a year or more ago, whether wages that won't be clawed-back, or even the re-sourcing of some technology products to the United States, which is helped by automation, but still sees higher costs to produce. None of us can accurately forecast how this will be handled, but we'll indeed project that even with reduced hiring, you won't get prices way down.

However if we can get a cessation of hostilities in Ukraine, and Oil breaks or at the most just hovers (my most recent expectation) around 100 / bbl or so, it gives some maneuvering room in the other areas. Last week I ruminated that Turkey was acting to facilitate talks between Russia and Ukraine about grain, and that was not generally reported by financial media until today. At least the certainty of the talks was revealed, and Erdogan of Turkey is meeting with the Russian (devil) Putin on Putin's way to Tehran to meet with the Islamic devils. (That's the purported deal regarding Iranian 'drones', but the real key is gas or other transmission lines that might feed Iranian gas North.)

Perhaps the meeting in Ankara merits more discussion of what's they talking about. After meeting with Khamenei, Erdogan joined his Iranian counterpart Raisi and demanded full cooperation against so-called terrorist organizations. In addition to the PKK and YPG, Erdogan named Kurdistan's Free Life Party, calling the three 'a calamity' befalling both countries. PJAK, an offshoot of the PKK, is focused on autonomy in Iran's Kurdish areas and conducted a string of hit-and-run attacks against Iran in recent years.

Next, Raisi hosted Erdogan and Russian leader Putin, for a trilateral summit on Syria as part of the Astana Process, a regional framework created in 2017 with the aim of implementing a cease-fire in Syria. Part of it is accomplished in no small part by the United States and French efforts (in which my cousin was directly involved at the UN Security Council.. just as full disclosure), as other aspects (and jockeying for control of Oil regions in Syria) certainly are fluid.

In-sum: 

The key to Tuesday's rally, which we expected anyway, was getting a statement from Russia (presumably Gazprom) that Natural Gas transmission to German would resume on Thursday, which was the after-maintenance plan which everyone got nervous about. On Monday one customer in Germany got a letter suggesting they wouldn't get gas, so that was part of the upset then.

If we can get decent guidance from some key sectors (like Semiconductors), I think it will help soften the continued turbulence of this Summer market. Sure it will stay a Summer market (some will be up and some will be down), but this is preferable to catastrophic calamity that some permabears keep calling for, or the pundits who forget that they were selling large portions of securities for the most part a year or more after the basic underlying distribution began.

If Semiconductors and Oil stocks hold together, that's enough to keep S&P for the most part 'pinned' in this wider range at pretty high levels. So, 'trading range' or limited advance, albeit with turbulent swings remain the prospect.

I can't say the S&P (or general market) is now immune to bear attacks, nor do I reasonably think we get through the Summer without newly volatile periods. But I do believe slightly-easing core inflationary components, especially if the situation in Europe improves, will combine to minimize inevitable purges. For the very near-term it's tricky for bears who disputed the chances of rebound of course, because they either missed the relief rally, got caught short, or both.

More By This Author:

Market Briefing For Tuesday, July 19
Market Briefing For Monday, July 18
Market Briefing For Thursday, July 14, 2022