Hey There Income Hunter,

Regular Power Income readers knew Powell’s hawkish act would have to come to an abrupt end … 

Well, last week’s consumer discretionary plunge was exactly the kind of shocking data that will force J-Pow to pull back the reins on tightening. 

A weak retailer signal was given in Walmart’s earnings on Tuesday, then confirmed by Target on Wednesday. 

Their earnings showed that the cost pressures from supply constraints are certainly a factor. However, the weakening consumer along with exploding costs are crushing profit margins.

And with retail names like Costco, Nordstrom, Macy’s and more on deck with earnings …

Today, we’ll look at the collateral damage from last week and what you can expect in the week ahead.

Bear Market Drop in a Coupleof Days

What a shocker of a week for retailers.

Just check out the graph below showing Walmart Inc. (Ticker: WMT) and Target Corp. (Ticker: TGT) price action over the week. 

More than a 20% drop in just a couple of days for each.

And Target had negative comments after earnings about how actions will be needed to address lower discretionary sales.

That is a big deal since TGT attracts a higher-income consumer than WMT (TGT $65k vs WMT $53k).

This tells you that even the higher-end consumer is getting squeezed by inflation.

So, these comments can only mean one thing … here come the layoffs.

Bad News May Be Good News

But this is exactly what the Fed wants and needs … 

The Fed needs the economy to slow so inflation cools down, and that’s what is beginning to show in the data. 

Look at it this way … 

We saw equities and bonds sell off together as markets focused on headwinds from Russia and China lockdowns caused an inflation scare. 

In the past week or so the focus shifted to growth concerns, which ignited a bond rally as the equity sell-off continued. 

Unlike an inflation panic, cyclicals don’t outperform when investor attention turns to worries around growth. 

So, bad news on the economy could fuel a relief rally in stocks in the short-term.

Bring It Home

For this week watch the Invesco QQQ Trust (Ticker: QQQ). Notice in the chart below, the downtrend line (black line), which sits on top of the 20-day moving average (orange line). 

The QQQs may build on the new low and bounce back on Friday, then break above the downtrend. Plus the 20 DMA could ignite some buying into the June 15 FOMC.

If investor sentiment does shift, we could see a 15-17% rally towards the 50 DMA (blue line) at 330.

On the other hand, new lows on higher-than-average volume could take us down to the 275 strike.

Be nimble this week and go with the flow as we may see a switch in sentiment.

And as always …

Live and Trade With Passion My Friend,

Griff