Goldman Sachs sees recession risk as higher and more front-loaded, states Bill Baruch, president of BlueLineFutures.com.
They cut US growth forecast and increased odds of a recession over the next year to 30% from 15%, and 48% over the next two years from 35%. Adding the main cause is the Fed’s “overtightening”, and the recession is “likely to be shallow.” They noted that shallow recessions have seen unemployment rise by 2.5% on average. -Bloomberg
Goldman Sachs echoes exactly what we have been talking about for weeks and now months; forget the two quarters of contracting GDP, the economy is already in a recession. In our view, there are front-loaded market risks, pricing in weaker growth over the next 9-12-18 months. Furthermore, the stock market should bottom before newspapers, magazines, and pundits admit we are in a recession.
Watching a battleground in 30-year bond prices at 134-135; above a tailwind and below a headwind to the risk-on quarter-end rebound trade.
Yield on US 10-year rises back to 3.30% as Crude oil rebounds from Friday’s bloodbath. Quadruple Witching is an anomaly in and of itself, deviating from the standard.
Russell 2000 futures had the most weekly volume on record last week. S&P and NQ most weekly volume since March 2020. Remember, volume defines capitulation.
Was this an anomaly? The SPDR Energy ETF (XLE) plunged 17.13% last week. Traded to lowest level since April 25 and back to the first week of March record volume breakout. Nearly $1 billion worth of XLE calls that were deep in the money expired worthless on Friday. Greed lost, as always. Mr. Market and Market Makers won.
Portfolio managers broadly have been extremely underweight in their energy exposure for this entire run, XLE still +32.4% on the year. With quarter-end next week, this is a great time to window dress. Example: “Your GOOG is -20% on the quarter, but we own some CVX.” Lennar beat earnings estimates this morning. Life from the beaten-down housing sector.
E-mini S&P (September)
We have reintroduced a cautiously bullish bias given the historic weekly volume numbers on Quad Witching cited above, our expectation that bearish bets have been and will continue to be unwound due to expiration and quarter-end, and the fact beaten down, high-multiple, stocks broadly did not make a new low last week (ARKK and the likes). Due to higher open, some gyration lower is to be expected within the first hour.
We want to see the S&P hold decisively out above what was major three-star resistance at 3717-3723.50, now support. Our rising momentum indicator aligns with this 3717-3723.50 support.
Learn more about Bill Baruch at Blue Line Futures.