The rebound in equities continued on Wednesday but this is still not a buyable bottom for stocks. The move came despite some hawkish commentary from Fed Chief Jerome Powell who says the committee is committed to taming inflation. In his view, price stability is of the utmost importance to the economy which should be translated as "aggressive interest rate hikes are on the way". The scariest part of the commentary was his opinion a recession was possible. Given the lagging nature of the Fed's stance, we take this to mean a recession is already underway and it may be a bad one.

Thursday could be a wild ride for the market. Comments are due from at least four Fed members and any one of them could up the stakes for the economy. As it stands now, the odds of a recession are very high, the only question is how long deep will it be and how long will it last?

Equities rebounded on Tuesday, the first trading day of the week, but we urge investors not to read too much into the move. the rally comes in the wake of new lows for the S&P 500 and is not likely to gain much momentum. The S&P 500 broke out of a downward slanting channel in the previous week which suggests the downtrend will gain momentum and not the other way around. This week, there will be few economic or earnings reports to move the market so inflationary concerns, fear of recession, and Fedspeak will likely take the fore.

The next big hurdle for the market will be the 2nd quarter earnings reporting season. The peak of the season begins in about three weeks with reports from JPMorgan Chase and other big banks and the news may not be good. Rising inflation and dwindling savings could put a cap on consumer spending which is the backbone of the American economy.

Equities broke out of a downtrending channel to the downside last week in evidence of mounting fear about the economy. The FOMC was forced to hike rates by 75 basis points in what some would call a surprise move. Others, however, would say the FOMC is still behind the curve and that at least one more if not two more 75 basis point hikes were needed. Regardless of the pace, the takeaway for the market is that inflation is still out of control and aggressive rate hikes are making the cost of business more expensive. In this scenario, economic activity can be expected to contract and there is evidence of that already. The Index of Leading Indicators fell for the second month by -0.4% suggesting an economic recession is already in play.

This week will be a hurdle for the market because of how little new information is set to be released. On the economic front, there are only two data points due out and both are from the housing sector. On the earnings front, there are only a handful of confirmed reports and very few from companies other than home builders.

Equities broke out of a downtrending channel to the downside last week in evidence of mounting fear about the economy. The FOMC was forced to hike rates by 75 basis points in what some would call a surprise move. Others, however, would say the FOMC is still behind the curve and that at least one more if not two more 75 basis point hikes were needed. Regardless of the pace, the takeaway for the market is that inflation is still out of control and aggressive rate hikes are making the cost of business more expensive. In this scenario, economic activity can be expected to contract and there is evidence of that already. The Index of Leading Indicators fell for the second month by -0.4% suggesting an economic recession is already in play.

This week will be a hurdle for the market because of how little new information is set to be released. On the economic front, there are only two data points due out and both are from the housing sector. On the earnings front, there are only a handful of confirmed reports and very few from companies other than home builders.

Equities reversed course on Thursday giving up all of their post-FOMC gains and more. The S&P 500 fell more than 3.5% at the low of the day to not only set a new low but indicate rising conviction within the market of an earnings recession if not an actual recession. With the FOMC on pace to raise rates to above 3.0% by the end of the year the odds of both an earnings recession and actual recession are on the rise.

In regards to GDP growth and actual recession, the Atlanta Fed's GDPNow tool fell to 0.0% for the 2nd quarter and is on track to hit negative territory.

If this turns into reality and 2nd quarter GDP is negative the economy is already in a recession and that makes the risk worse. In this scenario, it's not a recession that is the worry but how deep and how long it will be, and how hard will the landing be.

Equities wobbled on Wednesday and showed some resilience in the face of aggressive FOMC policy action. The FOMC hiked rates by 75 basis points despite a pledge to keep the pace of hikes at 50 basis points per meeting. The move is only the latest in a string of evidence that suggests inflation is out of control. Based on the latest data and talk from the Fed we think it safe to assume there will be another 75 basis point hike in July.

In other news, the pace of retail sales fell by 0.30% in May, worse than expected. The decline is due in large part to rapidly rising prices and the high cost of fuel, neither of which are expected to decline over the summer. The takeaway is that an economic recession is already in the works and investors should expect the worst from the Q2 reporting season.

The selloff on Wall Street gained momentum on Tuesday following a surprise report the FOMC was going to hike rates by 75 basis points. The news, which should not have been unexpected, is only the latest indication the Fed's stance toward inflation is getting more hawkish. The risk for the market now is that a single 75 basis point hike will not be enough to clamp down on inflation and another large hike will come in July. If so, the FOMC target rate would hit 2.25% fully two years sooner than the market expected as recently as last summer. This marks a major change in fundamental conditions and will have an impact on economic activity. Looking at the housing market alone, at this pace, the rate on a 30-year mortgage could hit 10% by the end of the year.

After the Fed, earnings will be the next big hurdle for the market and it is only a few weeks until the next peak season. So far, the early reports have been better than expected but we've only seen a few disparate sectors and industries. If the season comes in better than expected the S&P 500 could hit a bottom this summer. If not, we think the S&P 500 could continue to fall into the end of the year.

The sell-off in equities took on a new dimension on Monday with the S&P 500 falling nearly 4.0% by the end of the day. The move not only confirms the greater market reversal that is in play but the lowest targets for the bottom which are near the 2,800 level. With the sell-off gaining momentum and no changes to fundamentals in sight, investors should view any upward movement in price action as an opportunity to sell.

The next big moves may come later in the week after the FOMC announces the next policy change. The committee is expected to hike rates by at least 50 basis points and there is a growing risk it could be more. Even if the Fed only raises rates by 50 basis points this month, there is a near certainty a 75 basis point interest rate hike will come in July. The takeaway for equities is the cost of borrowing money is on the rise in the face of rising input costs and both are squeezing margins.

The May CPI data confirmed our worst fears. The FOMC has lost complete control of inflation and is on track to bring on an economic winter. The May CPI not only came in hot from the previous month but accelerated versus the expectation inflation has peaked. The data puts the idea of Peak Inflation to rest and we don't think this is the end of the story. WTI is on the rise and driving systemic inflation throughout the system. If anything, consumers should expect to see prices continue to rise at a high-single-digit rate well into the end of the year.

Last week, the S&P 500 confirmed a full reversal in the market. The index fell from the key resistance level of 4,100 and sed more than 6.5% for the period. The next target for support is 4,900, if this level does not hold up there is a very high probability the S&P 500 will see the 2,800 level before it sets a new all-time high.

Equities face an important hurdle today in the form of the Consumer Price Index. The CPI data is expected to moderate from the previous month but remain high and in favor of aggressive FOMC action. The obvious risk for the market is the data will be hotter than expected, the real risk is that CPI data no longer matters. It is clear to the market that inflation is out of control and will continue to rise over the next several quarters at a very robust pace. In this light, the FOMC can be expected to hike rates for an open-ended amount of time and alter the face of the economic world for the next decade or longer. In this scenario, the market is set up for a fall and will most likely retest 3,900 on the S&P 500 within the next week.

Next week, the risk for the market will be the FOMC meeting. The FOMC meeting should bring a 50-basis point interest rate hike with the possibility the timeline for follow on rate hikes will be accelerated. The takeaway is that without some major change to the economic fundamentals (and we don't see one coming) the S&P 500 will spend the next few years recovering from the pandemic and nearly 15 years of easy money policy.