The Fuse
Equity futures are on the rebound today after a horrendous end of January. SPX 500 fell 1.6% and halved the gains for the month up to that point. However, markets did finish higher for January by more than 1%, save for the Russell 2K which is off to a terrible start in 2024, down 4%. The first of the month usually offers some upside with new money flows but with earnings season in full swing there is perhaps a bit too much optimism built into stocks.
Interest Rates are steady this am after the Fed’s decision to stand pat on interest rates. One note from the statement was the committee does not expect to reduce rates until they are very confident inflation is moving sustainably towards its 2% target. While trends in the direction of inflation are down they seem to want more evidence, and it makes sense.
Stocks took it on the chin Wednesday with the worst move lower in 2024. Euro stocks fell a bit as well, the German bund yield rose slightly, gold is firm above 76 per barrel while gold is pulling back just under 1%. Stocks in Asia were mixed overnight with the Nikkei in Japan down about 1% but the Hang Seng up about .5%. Tomorrow’s job report is likely to ignite more volatility.
Earnings from Qualcomm last night were good but guidance a bit light, Align was also strong. This am Honeywell reported a miss while Merck beat and guided their 2024 forecast higher. Tonight is the big one though with Amazon, Meta and Apple reporting after the close.
A tough day for the bulls got even tough after Fed Chair Powell poured cold water on any March rate cuts. Prior to the meeting the fed funds futures market was looking for the first of maybe five cuts in 2024. When it was verbally stated that March was highly unlikely then the sellers got busy. The SPX 500 finished well under 4,900 after dropping nearly 1.6% on strong turnover.
The breadth was horrendous Wednesday, more than 3.5-1 but it wasn’t nearly as bad early in the day. But as the buyers stepped away the selling hit hard and the a/d line was lopsided. There is a chance to correct this condition later in the week but it will take some heavy lifting.
Turnover was heavy yesterday with some big selling happening in the last half of the day. Many traders may have thought the 1% down move was all there would be but there was plenty of selling left in the pipeline. Volume really accelerated the end of the day, we’ll see if that gets cleaned up later in the week.
A knock backwards was not what the bulls wanted to see especially during this very important week. The Fed came and went and delivered a blow to the markets, but even another 1% down the stock market uptrend is still in tact. Why is that? 1% down is to the 20 day moving average, which often gets tested before the trend resumes.
The Internals
What’s it mean?
Look no further than the VOLD in the last two hours to see where the problem was on Wednesday. Heavy volume skewed the data as big funds started selling stocks with reckless abandoned. The ADD was equally as weak, the ticks red as a blood moon. The VIX shot up too but not horribly, but still put/calls remain on sell signals. A corrective move can put the markets down another 3% without breaking a sweat.
The Dynamite
Economic Data:
- Thursday: Jobless claims, productivity/labor costs, ISM, construction spending
- Friday: Employment report, factory order, Michigan consumer sentiment
Earnings this week:
- Thursday: ETN, RACE, HON, LAZ, MRK, SWK, AMZN, AAPL, META, BZH, HOLX
- Friday: ABBV, CVX, XON, CHD, QSR
Fed Watch:
Another huge week for markets as the Fed will sit down for their first meeting of 2024. Fed futures are predicting no change in the current rate policy but perhaps in the statement some wording that might hint of rate cuts. The projections last month pretty much did that, but there is a wide disparity between what the Fed’s reality is versus the market. Perhaps some of that differential will be narrowed this week. The futures market still sees 5-6 rate cuts this year.
Stocks to Watch
Earnings – Thursday is a big day but so is Tuesday, which has AMD, MSFT, GOOGL, SBUX to set the table. Thursday has Apple, Amazon, Meta, Atlassian and others. These earnings reports will definitely drive market volatility.
Interest Rates – With a policy meeting this week we may see big moves in the 2 year yield. Note, the spread between 2’s and 10’s has narrowed significantly as the market prepares for a pivot in monetary policy (soon).
Economic Data – with all that is happening it is also a big week for data (see above). We’ll have the January employment report, ISM data, productivity/labor along with confidence and sentiment data.