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Stocks continued to advance Friday morning as bad news accumulated for the economy, showing a deceleration, but perhaps not as bad as some feared. Germand Ifo business climate index fell more than expected showing the toll the backdrop of rising rates expectations and Chinese lockdowns is having on the largest European economy. Meanwhile retail sales in the UK, month-over-month fell 0.5%, less than feared. German 10-year bund yields continued to fall, down 3bps to 1.41%. European stocks advanced with the Stoxx50 soaring 1%, but still down close to 5% since the start of the month.

Tuesday's bounce came to a halt as stocks fell on recession fears. S&P500 futures are retesting Friday, briefly falling below 3'700, a short-term support level. The backdrop continues to be negative for stocks and risky assets with the Fed expected to continue tightening amid a rapidly decelerating economy. Optimism about a soft landing is evaporating quickly, and we could expect a lot of back and forth in market sentiment as there is this continued uncertainty about how fierce will be the economic slowdown. Fed Chair Powell will speak today in front of lawmakers on drive to rein in inflation. Looking at technicals, on the S&P500, the 3'700 level should be significant support short-term. A breakdown could lead to further downside, possibly retesting the lows, while 3'780 should act as a resistance.  

Stocks are recovering, consolidating on gains since Friday. At 3'740, S&P500 futures stand 2.7% above the lows, but still 2% below Thursday's meltdown that sent investors panic-selling on growing recession fears. Why are stocks rallying? S&P500 futures are up 1.7% on what seems to be a combination of selling fatigue and improving sentiment. With most of the Fed interest rates tightening most likely behind us, investors are beginning to see the glass half-full. However, we are definitely not out of the woods yet as the clear trend is for central banks around the world to tighten until inflation figures improve, and the economic consequences remain to be seen if it pulls the economy into recession. From a bearish perspective, stocks could be bouncing from oversold conditions and be an opportunity for sellers to sell into strength, as we have seen multiple times last week. 

This morning, futures contracts are consolidating after yesterday's brutal slump, with S&P500 futures on the rise, adding 0.7% and just a few 10 points below the technical resistance 3'700 level. Traders are closing watching the EU CPI print and will be listening to Powell's speech later this afternoon. Fed officials have shown little concern about the equity market's reaction so far. For the record, 5 of the last 7 days have seen 90% of the S&P500 stocks fall, something last seen only in 1928, suggesting we might have gotten to very extreme oversold levels.

US economic data from building permits, housing starts, Philly Fed Manufacturing, and jobless claims, showed worst economic conditions than expected, a sign, that the economy is decelerating (faster than economists expected). Stocks are largely down in US pre-market (1.7% for the S&P500) as investors use every uptick to reduce positions, worried the economy will fall into a recession and downward earnings revisions are still ahead of us. The sentiment is weak and markets continue to be oversold.