Look for the inflection

Monday of this past week the stock market felt exuberant with the Nasdaq 100 rallying 2% and names like Netflix rallied 4.8% (after a Friday story they are cutting expenses), $SQ rallied 9%, $TSLA 5%, $PLUG 12%, while the transport index $IYT was down slightly.  Only $IYT remembered the trucking story of very weak pricing and demand relative to supply.  By Friday, $NFLX finished the week down 5%, $SQ down 7%, $PLUG down 9% and $IYT down 7% at a 52 week low.  Did the bear market rally of March peak Monday?  Perhaps.  Let’s review.

The Semiconductor $SMH ETF was down nearly 8% this week while $IYT was down 7%.  Any student of the market or even casual observer would think these two cyclical businesses dropping that hard would be signaling an economic slowdown. The only true bull market right now is in energy with $XOP (gassy mix of companies) finishing the week up at a 52 week high.  We think regardless of the economic backdrop names like $CTRA $EQT hold much promise the next few years as the European gas situation will keep supply/demand out of balance for the foreseeable future with the companies free cash flow yields 20% (and showing capex discipline with returns to holders).  The Fed got even louder, if that is possible, by Tuesday on rate hikes and discussion of $95 billion balance sheet reductions beginning in May.  The 10 yr bond yield rose 32 bps points to 2.7%.  China’s economy seems to have imploded a bit and is in desperate need of stimulus while Europe clearly is frozen economically at the moment with expected comments during earnings season likely to mirror as such.  Not exactly what you want to be hearing (any of this) if you are bullish right?