Still sideways-up
Good start to the quarter
Quick summary:
The Q3 competition is up & running - click here to join the action.
The week was again jumpy, but the moves were decent enough to profit from them.
Better-than-expected CPI (-0.1% m-o-m, 3% annually) boosted bonds and small caps but led to a sell-off in major tech stocks, indicating a sector shift.
Despite worse-than-expected PPI (2.6% vs. 2.3% expected), markets rose, driven by among other things, strong option flows.
Jerome Powell and other Fed officials will speak this week, with bank earnings set to continue plus NFLX reports.
On Saturday, in the paid section, I will talk about the earnings expectations and the equity risk premium, while taking into account the election cycle implications for markets.
The competition
The first results of our Q3 competition are in, and the scores are already looking promising. It's still early days, so there's plenty of time for anyone to climb up the leaderboard and compete for the top spots. Keep up the great work!
Consistency is key to staying in the top. And good predictions, obviously.
NOTE: For all those new to the whole thing, read more about it here or watch a video of Scott and myself guiding you through the survey, showing you all its features, and briefly explaining how the competition works.
Last week’s performance
Last week saw the markets reacting in unexpected ways to economic data. Thursday’s better-than-expected CPI report (-0.1% m-o-m, down to 3% annually) sparked a rally in bonds and small-cap stocks (IWM +3.5%), but the Mag7 tech stocks sold off, driving a surprising overall decline in equities. This shift indicated a rotation from tech to sectors like real estate, utilities, materials, and industrials, which are poised to benefit from anticipated rate cuts. Rate cut expectations surged, with a 90% probability of a cut in September.
Friday flipped the script with a worse-than-expected PPI report (2.6% annually vs. 2.3% expected), yet the market reversed course, with SPX and NDQ rising, and small caps and bonds continuing their climb. The mixed reactions underscore a critical question: has the peak disinflation sentiment been reached? As disinflation trends suggest lower inflation, the market is now weighing whether this signals a soft landing or a slowdown in economic activity. The coming weeks will be crucial in determining if further declines in inflation will maintain a positive narrative or reveal deeper economic concerns.
This week, markets will focus on Federal Reserve Chairman Jerome Powell’s speech and remarks from other Fed officials. The Federal Reserve's Beige Book, detailing economic conditions, will be released on Wednesday. Political attention will be on the Republican National Convention, featuring a speech by presidential candidate Donald Trump, the first major event after his assassination attempt.
Unless you’ve been living under the rock and only reading this newsletter (kudos to you if that’s the case!), you know that former US President survived an assassination attempt on a Saturday rally.
I did a quick reaction to that on X, so I won’t be repeating myself, and you can read it here.
What’s the market implication for this? Well, it increases the probability of a Trump presidency so the market is pricing it in now, clearly.
There was a bump after the open yesterday, and this was expected, but it soon converged back into regular market flows. I don’t expect any prolonged reaction on markets to this news.
So make your predictions using your regular skills :)
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DISCLAIMER: Neither the survey nor any of the contents of this website can act as investment advice of any kind. The results of the survey need not correspond to actual market preferences or trends, so they should be interpreted with caution. Oraclum Capital, LLC (Henceforth ORCA) is a management company responsible for running the ORCA BASON Fund, LP, and for organizing a survey competition each week, where it invites the subscribers to its newsletter (this website) to participate in an ongoing prediction competition. The information presented on this website and through the survey competition should under no circumstances be used to solicit any investment advice, nor is it allowed to be of commercial use to any of its readers. The survey and this website contain no information that a user may use as financial or investment advice. All rights reserved. Oraclum Capital LLC.
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