Stocks finished slightly higher this afternoon as recession fears continued to mount, driving oil prices lower. The Dow, S&P, and Nasdaq Composite all fell moderately through noon before gaining modestly by the close.
Today’s trading session was another one in which the “bad news is good news” narrative shifted to “bad news is actually bad news.” Two weeks ago, bulls would have strongly celebrated sinking oil prices.
Now, though, it’s just another sign that the recession could be more painful than initially expected. Oil stocks plunged in response. Chevron (NYSE: CVX) and Exxon (NYSE: XOM) both fell roughly 4% before recovering.
Some analysts, however, still believe a recession could be viewed as bullish by investors.
″[The market] has been bracing for [a recession], and now it may actually be embracing it, the idea being: let’s just get it over with, we’re going have a recession, let’s do it. Let’s clean out the excesses and start all over again,” said Ed Yardeni of Yardeni Research yesterday.
“The market is starting to look ahead into next year and that could very well be a recovery year from whatever this recessionary environment turns out to be. We’re all kind of doing a Hamlet recession – to be or not to be. I’m kind of thinking that there’s going to be a mild recession.”
Yardeni might be right, and his opinion reflects that of the market in June.
But ever since the Atlanta Fed’s relatively accurate GDP growth forecaster (GDPNow) predicted negative GDP growth for both Q1 and Q2 last week, investors realized that the Fed could potentially unleash a barrage of rate hikes during a recession that has already begun.
“GDPNow has a strong track record, and the closer we get to July 28th’s release [of the initial Q2 GDP estimate] the more accurate it becomes,” wrote Nicholas Colas, co-founder of DataTrek Research, when the GDPNow reading was released on July 1st.
Many analysts remain optimistic that the bear market is almost over nonetheless.
“Do we have a kind of drawdown that looks to be in that 30% range, which is the average for recessions, or something that looks closer to down 50%, which is what we saw back in the early 2000s and 2008 where we had two debt crises?” asked NewEdge Wealth chief investment officer Cameron Dawson.
“We don’t see a debt crisis. We think that we could start to find some value around that [S&P] 3,400-3,500 level because that’s what gets us back to the pre-Covid highs.”
Dawson’s estimate is unlikely to change following this afternoon’s June Fed meeting minutes release at 2 pm EST. Within the minutes, investors learned that the Fed is more or less sticking to its guns. There was no bullish surprise to be found, unlike the May meeting minutes which sparked a rally. Instead, the June minutes confirmed that the Fed is going to get serious about driving inflation lower via aggressive rate hikes.
And that’s not ideal for stocks like JD.com (NASDAQ: JD), which fell today, closing below its 10-day moving average. JD also closed below its minor bullish trend (yellow trendline) as well after failing to break out past resistance (red line).
The stochastic indicator also suggests that JD is neither overbought nor oversold.
For those reasons, it might make sense to take JD short with a trade trigger of $60.16, below today’s low, as the general market digests the latest Fed minutes release.
