Stocks now enter August's summer slowdown and are a 'show me story'

Published Tue, Aug 2 20229:06 AM EDT

Now we enter the stock market's summer doldrums. Much of the earnings picture is already known: earnings are up for Q2, and are coming down slightly for Q3 and Q4, but are still estimated higher by roughly 7% year over year for both quarters (takeaway: no earnings recession). The big Fed policy meeting in July is out of the way. Little wonder stocks are struggling for direction. For the market to keep advancing, a lot has to go right. If you want the market to keep going up, you really need evidence of a soft landing, or at the least a very mild recession. That's a big claim to make right now. The data has to thread the needle for the bulls to be happy, and a lot could go wrong. The big macro risk is that inflation takes a while to roll over and it keeps the Fed more hawkish than the market wants. Meantime, the "Fed pivot" is all the rage. That's the idea that the Fed will start cutting rates in 2023. This is making Fed officials apoplectic. But even the bulls know that it is too early to talk about rate cuts. So with a big move in the market already happening, the smart move is to lighten up on stocks and wait for the inflation numbers. The Prices Paid part of the July ISM Manufacturing survey, reported Monday, was lower That helps the "peak inflation" narrative, but bulls need a lot more data. July CPI comes out next week, on Aug. 10, but the expectation is for year over year inflation of 8.7%, just barely below the June 9.1% rate. The July jobs report is this Friday ... bulls want evidence that job growth is slowing down and maybe it is: jobs growth last month is expected at 250,000, down from 372,000 in June. If it hit 250,000, that would be the slowest growth since April of 2021. Still growing, but weakening. That would support the bull argument too. Meanwhile, those worried about the health of the consumer can take some cheer from the recent reports from big Real Estate Investment Trusts (REITs). Simon Property Group, which reported last night, indicated that the consumer was still healthy. Leasing remains strong: mall and outlet occupancy was 93.9%, up 0.6 of a point from the prior quarter and 2.1 points year-over-year. Tenant terminations were at record low levels. Simon raised full-year guidance for FFO (funds from operations, the main metric for REITs). Did I mention the dividends? REITs are traditionally dividend plays, but this is really starting to look attractive. SPG just put through its sixth consecutive dividend hike. The yield is now 6.4%, the sixth highest dividend play in the S & P 500 (fellow REIT Vornado has a 7.0% dividend yield).

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