Liquidity isn't the issue that it often is this time of year. Actual event-risk as well as inflation from a variety of origins, leads the pack of concerns. However most of these have been known for months if not a year or so, and impacted a very overvalued S&P (mega-cap led) area only after most stocks were hit.

Pixabay

This topic has often been discussed here, so we won't delve into it (Generals that more recently retreated to join the troops already hunkered-down in their trenches). However keeping that in mind requires recognizing that most stocks, to varying degrees, have already priced-in (or 'discounted') disappointment.

By the way I don't disagree with noting 'Commercial Hedgers' getting bullish while the majority of pundits and analysts have gotten bearish. The history of that is often resolved 'favorably', not with gloom & doom. I do think however, that those currently trying to quantify that in a charting or ratio rationale, are at the same time right and wrong. Correct that ultimately it's a building-block for the next advance, but incorrect if they presume such a recognition somehow prohibits additional volatility or even sell-off's, depending on events. But what it does say (to which I have concurred) is that the majority of 'professional' or Commercial selling that was going to take place, has already occurred. So as I have pointed-out more than once, there will be accumulation next not a new distribution. But again it's a 'process' and could consume several months 'if' a ceasefire, commodity break or some miracle doesn't come along sooner.

(Let's correct obvious typo above, Russia 'spites' its face, not vodka spiked.)

Complicating these basic factors includes the 'Ukraine War' that's unresolved, and risks (by most military analyst observations) being more difficult for Kyiv to prevail the longer it goes on (gives Russia more time to mobilize reserves, as they are doing, as insane as it might seem even to ordinary Russians too).

The U.S. getting more-advanced weapons 'to' Ukraine faster might matter, at the same time some continue to suggest it could provoke Russia to expand its theater of operation by attacking other countries, though that too is illogical in a sense. What is logical is to somehow open up the Port of Odesa to shipping grain lest we have (and already started) global famine situation worsening.

Of course Oil prices have a direct correlation to both the war and to the mixed 'demand' pictures, which have much to do with OPEC greed as to a domestic political scene that dis-incentivized U.S. firms from exploration and enhanced production. Furthermore there's the idea of lower demand with U.S. recession and similarly, lower demand by China given new COVID lockdowns.

My suspicion is that China will muddle through this (we'll hear more this week after their Communist Party Congress meeting) to somehow balance opening or maintaining economic revival, while also containing the spread of COVID or it's variants. That's of course tricky there and here, as the variants proliferate (as will the new vaccines within the next couple months). I have a lady friend who was very careful all along, but caught COVID last week.

Since she totally was double-vaccinated and double-boosted, and she still got quite ill for a couple of miserable days, 'so', taking Pfizer Paxlovid (within one day of symptoms diagnosed) is perhaps inferring what we hear in media, that the mutated variants are less sensitive to previous vaccines (today is the first day she is feeling a bit better, but not as quick a response as Paxlovid gave to others I know who went through similar experiences).

You might want to know (or may have heard) that 'if needed', you'll be able to get Paxlovid prescribed not just by your (or 'a') physician, but by pharmacists. I supposed doctors really don't want COVID patients in their offices, and a good pharmacy tech can administer a COVID test in the drug store and furnish pills if the test is positive, and that regardless should avoid any trip to the doctor.

There is also a strong headwind from the ongoing European recession, which makes the ECB's intended rate hike to fight inflation perhaps more risky than a similar tact by our U.S. Federal Reserve. We're seeing the resulting parity to the U.S. Dollar, contributing to what I simply called 'flight safety' buying from abroad over the past year and more.

Periodically I've noted that most mega-cap (conventional big companies) tend to have about a quarter of their revenues from overseas sales. So a recession in Europe, combined with the Japanese recession (or even COVID suppression in China impacting activity).. all of this squeezes companies in multiple ways.

In-sum: 

This market is defensive or basically on-hold ahead of not just CPI of course (Wednesday), but the forthcoming FOMC meeting. And I think the only thing that can support the market more significantly would be a ceasefire deal in Ukraine, and perhaps indications that China will not repeat big lock-downs.

At the moment COVID really is a big influence. China just closed the casinos in Macao 'for a week', to try to stem the spread. That his the major gaming stock areas of course, like Las Vegas Sands and Wynn Resorts. Sort of odd as all the comments suggest the new casino near Boston is doing great, but Wynn finds itself on credit watch given how prolonged China hurt Macau business.

This wandering market has managed to periodically revive the edge of selling, in what generally was a 'relief period' we looked for in early-mid July. Whether that exhausts or is prolonged a bit longer depends on the CPI data as well as earnings guidance within Quarterly reports coming up, more than Q2 results.

All these are rationales (for now they remain valid) for bearish late Summer or Fall stances. Although since this is well known, it'll be interesting to see how well the first coming 'earnings misses' are absorbed or shares really roll-over. Most bears expect massive dislocation impacts on big stocks. While what we will be looking for includes the noted potential heavy pressure events, since there are so many 'credit warnings' already out there, it's not that simplistic in a bifurcated market than has already trounced so many stocks and sectors.

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