Market Wrap
Narratives
We see US corporate pricing power near 3% and edging lower. Compensation pressures are heavier. Like consumer price inflation, wage and compensation pressures have peaked. However, compensation gains continue to run at 4-5%. The Employment Cost Index for Q2 is scheduled for release later this month. With compensation materially outstripping corporate pricing power, profit margins are being squeezed. Companies facing stiff compensation pressures and limited ability to pass along these rising costs will be forced to cut back on hiring. We know the last employment report was another healthy one. We were predicting a strong report. The dynamics, however, are turning. Employment costs should soon stretch beyond companies’ ability to pay — Stephen Gallagher, SocGen
Week Ahead
The upcoming week is highlighted by earnings reports from several prominent companies, including Bank of America, Morgan Stanley, Goldman Sachs, IBM, Netflix, Tesla, Johnson & Johnson, Philip Morris International, and American Express.
In terms of macro data, retail sales in the United States are expected to continue growing at a moderate pace of 0.4% in June. However, industrial production is projected to contract by 0.1%, marking the second consecutive month of decline. Additionally, there are expectations of a decline in June's building permits and housing starts, as well as in existing home sales. Other economic data to watch for include homebuilder sentiment, business inventories, overall capital flows, and regional activity indexes such as the NY Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Index - TradingEconomics
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
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Forward 4-qtr Estimate | 🔴 | 229.97 | 230.26 | 228.39 | January 1, 2023 |
Forward 4-qtr PE | 🔵 | 19.6 | 19.1 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔴 | 5.11 | 5.23 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
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SPX Implied Volatility | 🔴 | 10.85 | 12.1 | -1.25 | -10.33% |
SPX GEX Flip | 🔵 | 4,427.5 | 4,397.5 | 30 | 0.68% |
SPX Skew Adjusted GEX | 🔵 | 6,165,453,506 | 566,034,362 | 5,599,419,144 | 989.24% |
Equity Put/Call Ratio (CBOE) | 🔴 | 0.48 | 0.52 | -0.04 | -7.7% |
VIX Put/Call Ratio (CBOE) | 🔵 | 0.55 | 0.32 | 0.23 | 71.88% |
SPX/W Put/Call Ratio (CBOE) | 🔵 | 1.48 | 1.31 | 0.17 | 12.98% |
Futures
Friday's E-mini S&P 500 market was slightly lower with the Sep contract off by 6.75 to 4536.75. Across all maturities, the session saw a light 1,382,974 contracts change hands, with Sep volume coming in at 1,381,069. Combined open interest dropped 10,560, or 0.47%, to 2,259,405. Sep shed 10,452 (0.46%), finishing at 2,238,932.
Option trading centered around the July EW4 4650 calls with 20,949 traded and the July E3C 3625 puts with volume of 33,989. Greatest volumes in July option trading were seen in the 4550 calls (6,600) and the 4050 puts (8,483). Calls with the highest open interest are the July EW4 4650 strike (28,225), and for the puts are the July E3A 3720 strike (54,771).
As measured by the 30-day at-the-money, implied volatility was moderately down, off by 0.26% to end the session at a one week low of 10.76%. The 30-day historical volatility settled lower by 0.13% to a twelve year low of 9.87%.
Bull v Bear
This Week (30d ATM IV 10.76% v 30d RVOL 9.87%)Bulls will seek to extend > WHI 4560.50 (+0.52%) and ideally 4600 (+1.39%) on a closing basis. Upside: Q222 LH 4631 (+2.08%) is marginally beyond the +1σ (W) 4609 (+1.59%).Bears will seek recapture DTF 1TFD and retrace < the trailing 4w VAH 4484.75 (-1.16%) on a closing basis. Downside: WLO 4411.25 is just within the -2σ (W) expected range (-3.06%).
Last Week (4536.75 SEP23 +2.32%)Bulls will seek to defend WLO.1 4368.50 (-1.48%) on further weakness. Upside: > WHI 4494 (+1.35%) and ideally 4500 on a closing basis are within the +1σ (W) 4512.50 (+1.77%).Bears will seek to break WLO.1 on a closing basis. Downside: < JUN VAL 4350 (-1.89%), marginally beyond the-1σ (W) expected range (-1.70%), begins repair of the Departure Gap.
Indicators
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