This May Be The Stock Market's Most Pivotal Week Of 2022

Summary

  • The 2022 bear market cycles continue to track the 2008 cycle close.
  • The cycles suggest this may be one of the most pivotal weeks of the year.
  • At the same time, we get the all-important CPI report.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Learn More »

Mother bear with three little cub, looking for eating. Bear family in orange autumn. Pups with mother. Dangerous animals in nature taiga, wildlife Finland.

scigelova/iStock via Getty Images

If history has any say, this week may be one of the most pivotal weeks in this 2022 bear market cycle. The S&P 500 of today continues to play very close to the 1937, 2000, and 2008 bear market cycles. All of those previous cycles called almost perfectly the June low and mid-August high, and now it tells us that this week will determine whether this bear market continues or morphs into something else.

Of course, this week is the all-important CPI report, and while it is not likely to change the Fed's rate hike decision for September, it could be very influential in how the Fed views monetary policy. Based on analyst consensus estimates, the consumer price index is forecast to fall by 0.1% m/m and rise by 8% y/y. The core component of CPI is forecast to rise by 0.3% m/m and increase by 6.1% y/y.

The Cleveland Fed

There is a chance that CPI comes in higher than expected on those month-over-month and year-over-year estimates. Since February 2021, the Cleveland Fed's estimates for CPI have been a good predictor of the official CPI report. In fact, over that time, the Cleveland Fed's estimates have been lower than the actual m/m every time but twice. The only time the Cleveland Fed estimates were higher than the CPI report were in August 2021, and the second was July 2022. The Cleveland Fed estimates that CPI rose by around 0.06% in August, which would be almost two-tenths higher than consensus estimates.

Chart

Bloomberg

Additionally, the Cleveland Fed estimates an increase of 8.2% for August when measuring on a year-over-year basis. Also, since February 2021, the Cleveland Fed estimates have come below consensus estimates three times in August, September 2021, and July 2022. The miss in September 2021 was by a marginal amount of less than 0.01%.

Chart

Bloomberg

Based on those Cleveland Fed estimates, the CPI inflation rate may come hotter than the consensus estimates.

Higher Terminal Rates

Many Fed governors are already talking about a terminal Fed Funds rate of 4% or higher, following the better-than-expected job report. A CPI report that comes ahead of expectations is likely to push those interest rate estimates higher and is likely to be reflected in the Fed dot plot projections at the September FOMC meeting. The Fed Funds futures are taking the potential for a 4% Fed Funds rate seriously and reflect a peak rate of 4.01% by April 2023. That has the Fed fund futures back to nearly the exact positioning heading into that June FOMC meeting and peak hawkishness.

Chart

Bloomberg

2008

It will make this week the most pivotal week of the year and will likely set the path of monetary policy for the next three months. The cycle of 2022 appears to track that of 2008 the most closely to this point, and that comparison also has this week as the pivotal week.

Chart

Bloomberg

The comparison shows the S&P 500 turning sharply lower at some point this week. While many would say that we are not on the verge of a financial crisis today, and we are not, one must remember at this point in 2008, we were not on the cusp of a financial crisis either. The 2008 comparison corresponds with June 2008, which was pre-Lehman. The meltdown in June 2008 was just after a critical Fed minutes release showed the Fed downgraded its economic growth projections and raised its inflation projections. In those minutes, the market saw a recession on the horizon and a Fed that was not likely to cut rates further due to the high inflation rates.

In this case, a hotter-than-expected CPI could be what ends up being one of the most pivotal points in this whole saga that has played out over the last several months of 2022. In contrast, a weaker-than-expected CPI print could very well prove to be just as effective in setting the course of the market for the year's balance.

A pivotal week this will be.

Join Reading The Markets Risk-Free With A Two-Week Trial!

(*The Free Trial offer is not available in the App store)

See why Reading The Markets has been one of the fastest-growing Seeking Alpha marketplace services in 2022.

Reading the Markets helps readers cut through all the noise by delivering stock ideas and market updates.




This article was written by

Mott Capital Management profile picture
30.78K Followers
Designed for investors looking for stock ideas and broader market trends.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer's views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer's analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer's statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

Recommended For You

Comments (34)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.