The Fuse
Equity futures have been all over the place but have retained a modest bid into the open. Currently markets are mixed with the Nasdaq lower and the Industrials higher. All indices took it on the chin yesterday but are trying to regain some lost ground. It is still looking like a positive week.
Interest Rates are falling this morning after yesterday’s sharp rise in yield. The bond market let everyone know yesterday that there remains a bear market in fixed income. The long end of the curve remains well bid (going higher) even as it was noted several times this week by the Fed that rate hikes could be just around the corner.
A hot CPI number was eventually considered too much for stock buyers, so they sold the markets off viciously. Overseas stocks were mixed and responded to the big spike in rates in the US on Thursday. But there is plenty to worry about, especially with the changing situation in the Middle East, a war that could last for some time.
Solid earnings beat this am from JPM, UNH and WFC but of course estimates were sharply lowered, hence the bar was basically on the floor (raise your foot up to step over the bar, and beat!). Next week is a better mixture of earnings and we’ll see how stocks respond.
Equities were hammered midday for a good solid hour following what was a very poor bond auction. Well, at least that was the reasoning in the media, because there was certainly a host of reasons for selling down, first of which was a very strong overbought condition and poor technicals on the day.
Breadth was poor all day so it may not be a surprise stocks headed lower later in the day. Buyers were not stepping up to the plate to pick up stocks, rather using the rallies to sell. It happens when certain peaks or objectives are reached.
Turnover was pretty brisk later in the day as a distribution day was notched on Thursday. A few more of these will have us question the uptrend and look for downside objectives, but for now as we head into earnings season we will pay attention to strong volume names that are rising or falling.
As much as the markets tried this week to make a run at 4400, it just wasn’t meant to be. The 4380-4385 area seems very stiff resistance, three times this week that level was tested and rejected. Down below support at 4220, quite a ways down but if that gets tested and holds we have something positive to work with.
The Internals
What’s it mean?
The theme was down all day long, though the start of the day was not all horrible. The CPI number was hot but sellers were not engaged yet.
The VOLD was down from the start and never let up, notice the TICKS showing very strong concentration of red. Clearly more selling than buying, and the VIX shot higher only to pull back towards the end of the day. The ADSPD at one point showed a trend down day, but finished off those levels.
The Dynamite
Economic Data:
- Friday: Import/Export Prices, Michigan Sentiment Index
Earnings this week:
- Friday: JPM, UNH, PGR, WFC, BLK, PNC, C
Fed Watch:
There were a slew of Fed speakers last week talking up monetary policy, but really nothing changed. Loretta Mester from Cleveland led the charge of higher for longer, and the committee seems head-strong to get inflation down to its 2% target, likely by the end of 2025. If that’s the case, rates will be coming down but for now we’ll have to live with higher rates, the punishment for high inflation. That said, the jobs report Friday was very strong on the headline and wages moved slightly lower.
Issues/Stocks to Watch this Week
Financials – Banks are in the spotlight this week, at least a few of them as we see how recent slowing in the economy and higher interest rates affect investment, loans and income. Friday is the day.
Inflation – Two big readings on inflation this week are the CPI and PPI, but other data will be scrutinized as well. The August headline saw an annualized rate of 7.2%, which is clearly in the wrong direction. Stocks took it in stride.
Internals – The indicators have been weak for about two months as the stock market glides through a corrective phase. But improvement on a Friday is not common, so with an oversold condition at hand we could see a more substantial rally develop towards resistance.
