Market turbulence was front-and-center on Tuesday, with headwinds from the economy, particularly the semiconductor sector (the Apple 5G modem not viable, requiring extended relationships with Qualcomm per rumors that sure caused selling in the former and upside by the latter).

Pixabay

Also this issue spread it seems to almost all chip stocks, as AMD also was fairly solidly clobbered. If it is the suspected 'bear market (and seasonal re-balancing) rally' only, then the further erosion later in the Summer should re-introduce attractive pricing.

Also there was a bit of a 'holding action' ahead of the unscheduled January 6 Hearing, which was a bit newsworthy, but has little if anything to do with the stock market other than the anxiousness about what if anything might be revealed. Perhaps the 'angina' about the Congressional progress (or lack of) regarding passing the so-called 'Chips Act', had an impact (I suspect so as the fear is if it doesn't get passed by Labor Day it's bad news for the stocks).

This is not a time to be overly excited about stocks, nor overly bearish either. I view it as a seasonally favorable time simply for the rebound from a collapse of the mega-caps and 'safe haven' stocks ahead of Quarterly Expiration just a couple weeks ago, as a set-up for a turn that could evolve (and may still be of course with variables) into the Quarter's end and early-to-mid July.

It's a precarious situation in a way, more so for stocks depending on important developments like the 'chip fabs' that Intel and others are championing. I tend to think the bill should pass, as it's a no-brainier bipartisan issue to do all this, as we must re-source crucial manufacturing (especially in semiconductors).

However overshadowing everything is the demand for Oil. If the war doesn't end and even with more imports from the likes of Iran and Venezuela, there is the specter of demand outstripping supply significantly even with temporary or (improper?) Strategic Petroleum Reserve releases. So Government knows to address this 'if' war continues, the Fed actions have to break demand enough to truly create 'demand destruction' and drive down retail gasoline (and diesel) prices. It's hard to factor that as 'policy', but it also works against Democrat's prospects at mid-terms, since the mass public really abhors .. poverty.

• The FDA recommends the 'new' (Omicron and multi-variant) vaccines for COVID 19 be used this Fall, this is something I had already suggested as a probable preferred approach for most who will want a vaccine or booster, of course consult with your own physician if waiting for updated vaccine).

• FDA advisers did not comment on the alternative of a COVID treatment, as of course that's out there as well (Paxlovid from Pfizer (PFE) is one of a few).

• Regional Fed reports were lower, perceived wealth is illusory to a degree, and basically our rebound call from two weeks ago is 'eye of the storm' as opposed to 'all clear' assessment, barring a ceasefire for the war.

• China has an impossible task of trying to achieve 5%+ growth this year, a scenario that requires monetary expansion not just COVID-zero policies, if the policy in Beijing circles-back to lock-downs (as it could in the Fall) with a new COVID wave, that presses supply-chains again, and U.S. firms too.

• More talk about a 'boomerang effect' now dominant, you hear today about Target or also Walmart (including their lack of responsiveness to scams, a different issue), but generally the 'boomerang' is excess inventory (most consumer demand contracts with diminished discretionary spending), with how things look now, apparel or Mall-based stores aren't well-positioned (I realize some of these stocks already priced-in a lot of their latest woes).

• Tesla (TSLA) laid-off about 200 of their 'autopilot' staff in San Mateo, which likely is part of their emphasis on moving to Texas (although in China any driver of Tesla's has been prohibited in certain areas.... due to cameras and wild allegations the cars are spying on China and sending info to the US), for sure blossoming competition remains the primary concern about Tesla, by the way Telsa did poorly in a 'new car quality' survey (28 of 35 brands with Buick... yes Buick... at the top of the survey, then Dodge & Chevy!).

• All of this leads to weak economic growth, re-calibrating valuation metrics and recognizing that the prior year was distribution masked by mega-caps (buybacks and such), and I repeat this always, because it's the reality as opposed to the fantasy a superficial view of the Indexes gave for months.

• Finally very pleased the Turkey's Erdogan withdrew his opposition to the NATO membership of Sweden and Finland, which apparently progresses during the important gathering near Madrid.

In-sum: 

Semiconductor 'chip Bill' passage hit the market more than worries about inflation or contracting 'Consumer Sentiment', which isn't surprising at all. Textbook definitions of this 'chop' is not as significant as where things are headed, and where the Fed wants this to go (which is to slow things down).

It is a bumpy ride and the definition of 'recession' not very relevant as I tend to think we've already been in that, so obviously the Fed was tardy on 'snugging up', and yes it was evident as we talked about their delay for months last year and while I believe the Fed wants to avoid a deep decline, all this is unclear.

Concurrently the Fed's job is quite challenging, also because of Oil prices and the limited impact the Fed can have upon the expectations and actual inflation that unfolds. Ultimately inflation will retreat somewhat, but as formerly noted.

Inflation isn't going to return to lows like seen before the last 18 months, and it is not to be overlooked that was an 'Emergency' backdrop for negative rates in an 'inflation-adjusted' way. We can all watch the metrics like the Dollar and Oil, but I don't concur that people are generally positioned to weather this well as officials like Treasury Secretary Yellen contended recently. People will be struggling (or are already), spent the so-called stimulus relief money, and it is obvious by looking at 'revolving credit' and so on (that people are stretched).

Financial conditions were and are tighter, and with the reversal day you'll tend to hear more about how pressed consumers are, which they are, but that was the same yesterday as it is today. Inflation is not rolling-over much yet, but if a rebound occurs on Wednesday, I suspect media will suggest that it is fading. I doubt it can much with Oil so strong, and the military profile still ramping-up.

Tuesday was more like we might have thought for Monday, which features just limited movement for S&P in the wake of Friday's highly robust Senior Index advance. It was very much about the 'Chip' issue, and of course the news Qualcomm (QCOM) will remain the provider of Apple 5G modems in 2023 (AAPL).

Well although Apple previously bought Intel's modem business (in Germany) back a few years ago, Apple did not say they couldn't make their own, after spending big money to acquire that business from Intel. I say that because as I wrote about at the time (my recollection), it was to be about 5 years before a home-grown version would become viable (and in mass production). So, for the moment although this helped QCOM which we like anyway, I'm unsure of where this leaves Apple's modem project in the longer future, they didn't say, only one analyst concluded that. I simply say it wasn't expected yet anyway.

Beyond this is was mostly-tech big caps that were primarily under pressure. I view the year as two negative Quarters for the stock market, even as the bear market rallies lose intensity, even as seasonal influences try to seasonally do a rebound. We may be at peak Fed hawkishness, we are past peak earnings, unless one uses a vivid imagination based on inflation adjusted revenue gains and that again leaves this Quarter having been supported by Energy stocks.