ast week kicked off 2Q22 earnings with banks like JP Morgan, Wells Fargo, City Group, and Blackrock reporting mixed numbers. With a possible recession on the way, this week we dive into the latest Federal Reserve Supervisory Stress Test and what the results mean for banks and our economy.
Build Back Never - After failing to pass the sweeping reforms promised during the campaign, President Biden has urged lawmakers to pass the Build Back Better plan without its climate initiatives. This may be the administration's first good decision, given bad climate and energy policy got us in this mess in the first place.
Blackrocks Not in the Black - Larry Fink blamed and "investment climate not seen in decades" for Blackrocks ($BLK) suboptimal 2Q22 performance. Blackrock, which once managed over $10 trillion, has seen its stock price decline 35% this year with every business except the iShares ETF segment losing money.
Markets finished lower this week, but the June inflation surprise gave a more confusing response compared to last months May surprise. The S&P rose while 10-year yields declined, indicating either investors aren't sure what the Fed will do next week, or they're already looking past recession risk.
Although Energy and Food are driving inflation, commodity prices fell in June. As we reported last week, Goldman Sachs outlook remains negative, and they still view this dip as a buying opportunity for commodities.
Core inflation has cooled from its high of 6.5% in March. But two-thirds of the CPI components are rising more than 5%, and rent — the biggest services component — recorded its largest monthly advance since 1986. Some might say that's a residual effect from low rents in 2020, but that base effect is long gone. Landlords are simply raising rents at a record pace, and that's possibly eating into household debt service ratios too.
While commodities are down for now, the next quarter or two will be important to gauge whether or not CPI is truly decreasing. In the meantime, broad market volatility will remain high.
Tendies Options Flow
Sentiment continues to be mixed with heavy put volume on $SPY and $IWM in anticipation of further rate hikes. We've identified a few interesting flows coming out of last week below:
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