Premarket: Summer stock rally could cause more pain

What’s happening: The S&P 500 rose more than 9% in July, its best month since November 2020. The expectation among investors was that the Federal Reserve might start being sweetReducing the risk that aggressive central bank interest rate hikes could propel the US economy into recession this year or next.

But the real excitement about pop is hard to come by. Many traders are reading the gains as a “bear market rally” or a short-term rise within a broader bearish trend.

“We think the market may be too complacent too soon to hedge bearish risk,” Goldman Sachs strategists told clients this week. “We think the markets will be vulnerable to amazing surprises.”

If the stocks start making losses consistently, it can be painful. This is because many investors have kept their money in the market despite the recent ups and downs.

“We haven’t seen broad-based outflows,” Karim Chedid, head of investment strategy for BlackRock’s iShares business in Europe, the Middle East and Africa, told me. “There’s still money in the equity.”

According to Chedid, the big reason investors haven’t dumped the stock is because they entered 2022 with a high level of cash. As inflation rises, reducing the value of that cash, they are not eager to hold any more. And so far, the attractive options have been limited.

“That means the pain business is going down,” Chedid said. In other words, those who still have skin in the game can hit the hammer.

Know this phrase: Strategists are waiting for a moment known as “capitulation,” when losses become so brutal that at any time and even the most reluctant trader can exit head for. This often indicates that a selling trough may be near.

Data on fund flows overturn the idea that the surrender has already come. There is still a lot of risk, which means the market whims could cause more misery.

Full-throated bulls can be hard to come by just yet, but not everyone is a total freak.

“While the activity outlook remains challenging, we believe the risk-reward to equities looks more attractive as we move forward. [the second half of the year]JPMorgan Chase’s Marko Kolanovic told clients this week, noting that the valuation looks attractive compared to future earnings.

Yet Savita Subramaniam of Bank of America said many companies are still not cutting their earnings estimates, even as economic growth slows. This is a huge vulnerability should things deteriorate rapidly.

Pelosi’s visit to Taiwan shocks markets

US House Speaker Nancy Pelosi’s expected trip to Taiwan shook markets in Asia on Tuesday as investors expressed concerns that the trip could escalate tensions between the world’s two largest economies.

Nancy Pelosi's plan to move to Taiwan stuns Chinese markets

Latest: Hong Kong’s Hang Seng Index dropped 2.4%, my CNN business colleague Laura Hay reports. Mainland China’s Shanghai Composite closed down 2.3%. Taiwan’s TaiX closed down 1.6%.

The Taiwan dollar weakened 0.1% against the US dollar. Meanwhile, the Japanese yen, a traditional safe-haven currency, rose 0.6% against the greenback.

Investors also bought US government bonds, which are considered a safe bet.

A step back: Pelosi is expected to visit Taiwan as part of her Asia tour, according to a senior Taiwanese government official and a US official.

The decision comes despite warnings from Biden administration officials, who are concerned about China’s response to such a high-profile visit. The Speaker of the House, who is second in the line of succession to the presidency after the vice president, has not visited Taiwan in 25 years.

Stephen Innes, managing partner at SPI Asset Management, told clients on Tuesday: “No party wants a real war, but the risk of an accident or increased aggressive war play is real, which can always lead to a tactical mistake. “

The long journey of common supply chains

one in Recent Version Before The BellI have written about how global supply chains are showing signs of recovery, a development that could eventually push down decades-high inflation.

But I noted that the timeline for a return to normal conditions is still anyone’s guess — a thesis supported by Maersk’s latest guidance for investors.

The container shipping giant raised its annual profit forecast on Tuesday. It now expects revenue of $37 billion, up from $30 billion earlier.

Rationale: “High freight rates have continued for longer than initially anticipated due to overcrowding in global supply chains.”

Maersk said it now expects a “gradual normalization” in freight traffic by sea in the last quarter of this year. In May, the company expected this process to happen “early” in the second half of 2022.

My takeaway: The cost of shipping a 40-foot container keeps coming down, which is good news. But it is difficult to put too much stock in the schedule, which has been delayed time and again. And the shipping industry remains at the mercy of many variables, from Covid-19 and the war in Europe to an uncertain economic environment.

“In the wake of the war in Ukraine, continued disruption to global supply chains and the impact of the COVID-19 pandemic, forecasts are subject to considerable uncertainty,” Maersk rival Hapag-Lloyd said when it raised its annual profit forecast last week. ,

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