I write weekly market recaps on my website, click here to read the full article and continue downward for the recap!

"I’ll be the first to say I’m relieved that it is the weekend after how exhausted the market made me feel this last week. We had a huge week of news that was ultimately matched with some big gains for the week that padded the upside for the month of July. These gains were driven in part by short-covering activity and capital going back into equities following the worst first half of a year in decades.

Nearly 200 companies reported their earnings results for the June quarter, the FOMC held their July policy meeting, the economic calendar featured the Q2 GDP Report, President Biden held a call with China’s President Xi Jinping, Senator Manchin surprised all with a reversal of position and reached an agreement with Senator Schumer on the provisions for the Inflation Reduction Act of 2022, and Congress passed a $280 billion bill designed to increase the country’s competitiveness with China ($52 billion of this goes directly to semiconductor manufacturing capacities). Whew, was that a run-on sentence?

This week we saw weakening consumer spending across the board highlighted with a handful of earnings and data releases. The PCE Price Index showed the highest year-over-year reading since 1982 at a reading of 6.8%. We also saw the 3rd straight drop in consumer confidence and a weak New Home Sales report for June. For earnings, we saw warnings from Walmart ($WMT) that highlighted fuel and food inflation decreasing spending on general merchandise, Best Buy ($BBY) warned of further softening in demand for consumer electronics, and Stanley Black & Decker ($SWK) also warned of general weakening consumer demand.

Seems like a lot of bad news for consumers, but it did not shake the market. Investors were laser-focused on better-than-expected results and/or guidance from big tech ($GOOG, $MSFT, $AAPL, and $AMZN). A market drop in Treasury yields and the idea that weak economic data would steer the Fed away form an overly aggressive path on future rate hikes kept the market strong.

The Fed was key to this week’s action. It raised the fed funds rate on Wednesday by 75 basis points as expected. Chair Powell, did an applaudable job at his press conference afterwards, walking a fine line between needing to be tough on inflation while also conceding that the pace of rate hikes are likely to slow. He didn’t rule out another 75-point hike at the next meeting, claiming that the data would dictate the decision, indicating that the guidance from the Fed that we have become used to is likely to slow or stop. Expect data to be the leading factor in how policy is decided now on a meeting-by-meeting basis. This effective step-down from an aggressive rate hike approach was enough to rally the market post meeting on Wednesday that continued through the end of the week.

According to the CME’s FedWatch tool, the futures market is pricing in two rate cuts in the first half of 2023. I don’t believe Powell said anything that supports this thesis.

Despite seeing the 2nd consecutive negative quarter of GDP (-0.9%), All 11 sectors of the S&P 500 ended green this week ranging from 1.6% to 10.3%, led by the energy sector. All sectors ended the month positive as well ranging from 3.1% to 18.9%, led by consumer discretionary. A rally in Tesla and Amazon forged the way for these gains for the consumer discretionary segment which is still down 20.4% for the year. Overall, all major indices were up for the week and the month.

Next week is fairly mild on potentially impactful items in the economic calendar. We have some PMI and employment numbers to look forward to.

My bearishness on the last week was incorrect, however I’m sticking with the bear mindset for the short to medium-term. The Fed may have reached the levels at which they want to maintain rates, however, I believe the economic effects of the previous increases that got us to these levels have yet to fully felt. The effects of rate hikes take time to materialize and the economic data that we watch is often a month or even a quarter behind. I find it hard to believe that the highest levels of inflation in recent decades are not going to simply disappear in two quarters. The current market seems overly optimistic in my opinion.

Maybe I’ve just been spoiled by buying so many cheap dividend stocks in this market that I want things to stay bearish! Regardless of the way things move, we will buy structurally sound companies that pay safe dividends and have a promising future. We did this last week with some buys in $INTC and $CMCSA to name a few. Read the portfolio update here."