Tuesday Morning Rebel Brief: Cathie Wood, Michael Burry and Fed Williams Talk Inflation

Good morning Rebels! The market is trading higher this morning, led by the Dow Jones and the Russell 2000, both up more than a percent in early trading! The S&P and the Nasdaq aren’t far behind as bulls look to continue taking back the narrative after months of bearish price action. The S&P in particular will be one to watch as it continues to put distance between itself and bear market territory, which is marked as anywhere below the $3,855 level. To do that, the Fed will have to continue walking its increasingly tighter path to combating inflation without causing a recession.

And speaking of…

NY Fed President Williams Doesn’t Believe the U.S. Will Enter a Recession

NY Fed President Williams told Steve Liesman on Tuesday morning, “A recession is not my base case”, “I think the economy is strong,” and though he expects economic growth to slow “quite a bit” in the wake of continued financial tightening and rate hikes, he does not believe that a U.S. recession is likely. This runs counter to Goldman Sachs recent call that the likelihood of a recession is at least 30% over the next year. 

Cathie Wood Says the US is in a Recession, Still Believes in Eventual Deflation

Ark Invest founder and CEO Cathie Wood said in a CNBC interview on Tuesday that she believes the U.S. economy is already in a recession. She cites inventories that are higher than any she has seen in her 45 year long career, and inflation that was admittedly more powerful and longer lasting than she originally expected. Wood still believes in her base case, that this sets up the US for a period of deflation. 

Michael Burry Has a Similar Deflationary Take to Cathie

Michael Burry of “Big Short” fame tweeted Monday that he believes the Fed will soon reverse course on monetary policy, going as far as cutting rates and moving back into quantitative easing. Much of Burry’s thesis revolves around a retail “supply glut” — a similar take to Cathie’s, Burry believes that the overstuffed inventories of retail sales will cause “deflationary pulses” and ultimately, economic weakness. 

Burry bolstered his case with a citation to this CNN article from June 26th. The article references stores like Target (TGT), Walmart (WMT), Gap (GPS), American Eagle Outfitters (AEO) and more who said in their most recent earnings calls that they have too much inventory. The issue is so bad that many stores are no longer accepting returned products. They’ll provide a refund, but they aren’t interested in the “extra stuff”.

Nike (NKE) Beats Earnings, Falls on Weak Guidance

Sports apparel and footwear titan Nike topped earnings expectations Monday night, with a 22.9% positive EPS surprise ($1.00 vs $0.81 expected) and a 1.16% positive revenue surprise ($12.23B vs $12.09). However it wasn’t enough to save the stock from a more than 3% fall in the premarket. This was likely due to Nike’s weaker than expected forward guidance, with the company reporting first quarter revenue forecasts that came in below estimates.

For more quick takes on this morning’s market-moving news, check out 60 Seconds With Jon Najarian!

https://twitter.com/jonnajarian/status/1541770098557521920

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