The Fuse
Equity futures are mixed early on here following a strong Thursday session, the best day for markets since August 29th. Apparently market players ignored the hotter than expected inflation and now believe they are in front of the Fed with predicting policy. That’s a dangerous place to be, however. If wrong and the Fed next week might indicate that, the outcome could be rough.
Interest Rates are rising again this morning, if above the highs from early Thursday then we could see a run to 4.5% on the 10 year bond. Equity investors are not fearful of a rise in rates though, and that may smack back in their face, growth stocks will be negatively affected.
Taiwan Semi told its suppliers to delay chip deliveries, fearing a larger slowdown than expected. A strike at the big 3 automakers was not averted, they are targeting select factories. This could pull down economic growth by 1% or more if prolonged. Arm Holdings debuted on Thursday with rousing success, perhaps the IPO market is ready to move.
Adobe delivered some strong earnings and tepid guidance, the stock is pulling back but this may be a good buying opportunity.
With a strong bid yesterday it really did not matter much what the PPI numbers were. Hot or cold, liquidity is driving this market today and that means when the market is well bid, stocks are going higher. That’s what we saw yesterday in a corrective up move.
Finally a break in the fever of red breadth days. Thursday was finally one filled with more advancers than decliners, something we had not seen much this month. We’ll see if there is followthrough though, which would be important to see if there is a continuation towards 4,600 on the SPX 500.
Volume trends were positive as the turnover is starting to pick up strong before today’s big options expiration. This is the triple witching variety, and notably the eve of a Jewish holiday where we often see traders heading away from ‘thestreet for about ten days or so. Don’t expect to see too much volume before the start of October.
A strong move by the indices have them knocking on the door once again of a breakout move. However, there is no reason to get excited until that actually happens, the market remains stuck in a range for the foreseeable future.
The Internals
What’s it mean?
Solid win for the bulls after a few lackluster sessions. Given the news out with PPI and retail sales we saw a big drop in VIX, the fear index s languishing in the 12% range. That’s pretty low here, but until that burns off we won’t see the market pull back anytime soon. A strong VOLD and ADD yesterday were the hallmarks, TICKS were also strong and concentrated in green. Followthrough is key here.
The Dynamite
Economic Data:
- Friday: Import/Export Prices, Empire Manufacturing, IP and Cap Utilize, Michigan Sentimen t
Earnings this week:
- Friday:
Fed Watch:
Several Fed speakers out last week reiterating their hawkish views, though a couple may have hinted the Fed is much closer than everto ending rate hikes. That simply means the economy and monetary policy will be in a new phase of tightening, and that could last awhile longer. No Fed speakers this week as the committee members enter a quiet period. Currently about an 8% chance of a hike at the Sept 19th meeting, but the market is pricing in 2 hikes slightly by the end of 2023.
Issues/Stocks to Watch this Week
Apple – The company’s latest event called Wonderlust starts Tuesday, and it is assumed they will unveil their latest iPhone creation, new watches and perhaps some other new products. Always something to watch.
Inflation – The headline reading for August is expected to be quite high, a 9.5% annualized rate. That is unacceptable, but is mostly driven by higher energy and food prices. Core levels are still elevated though and should remain so. These numbers will be important before next week’s Fed meeting.
ECB – The central bank of Europe will have their rate meeting this week, they have been aggressive with policy in trying to rein in their high inflation. They are likely to raise rates at least once more before the end of 2023.
