I see 2 big volatility events ahead of us in July that are powerful enough to move stocks. Get on the right side of these and there’s money to be made.
Here’s how I handicap these two events.
First, the Consumer Price Index report on inflation for June is scheduled for July 13. Anything that suggests that the Federal Reserve is starting to get inflation under control will kick off a big bounce and maybe even a rally. The key number here is the 8.6% annual rate of inflation reported for May. Even a dip to 8.4% would be big news and is just what traders and Wall Street investors have been hoping to hear since that kind of drop would suggest that the Fed would end its cycle of higher interest rates sooner rather than later. Conversely, a move above May’s 8.6% would be a huge disappointment to the markets and would be likely to send stocks reeling. The problem for anyone trying to make a buck or three from this even is the need to get on the right side of the news. The recent pullback in the price of oil gives a slight edge to predictions of a dip in inflation. But it’s only a slight edge. Adding to the advantages of betting on the upside here is the market’s strong desire–demonstrated in last week’s 6% rally in the Standard & Poor’s 500–to believe that the Federal Reserve will stop raising interest rates in early 2023. And, then, maybe, move to interest rate cuts in the last part of 2023.
Second, earnings season starts slightly before the middle of July with the quarterly report from JPMorgan Chase (JPM) on July 14. I think the big new earnings report start slightly later with Netflix (July 19) and Alphabet (GOOG) and Apple (AAPL) on July 26. The worry here is that these companies will warn on guidance for the rest of 2022 and repeat comments from their first-quarter reports about a slowdown in sales. I suspect that the market will go into earnings season with a belief that guidance will be negative. That might produce a slip in stocks before actual earnings and a move higher in the shares of any company that doesn’t guide lower on sales. If you’re looking to trade this earnings season, remember that you have to place your options bets before the actual reports. And watch options prices, and not share prices, to see how trading sentiment is shaping up.
