The Fuse
Equity futures are lower this morning after a very strong session for the markets on Wednesday. After wiping out losses from earlier in the week, stocks managed a strong comeback on good turnover. Overnight stocks in Europe rose up .3% in a busy earnings day. Stocks in Asia were mixed on the final day of trading before the Lunar New Year holiday begins. Chinese stock markets will be closed for just over a week.
Interest Rates are stabilizing this morning as a new 30 year treasury auction is set to take place. The 2 year yield fell to 4.429 and still remains sticky above 4.4%. This implies slightly more than 3 rate cuts built in by the end of 2025. The 10 year remains above 4.1% though and has climbed a bit.
More Fed speakers out today and one tomorrow.
Stock market sentiment is starting to peak. The Fear/Greed index is now extreme greed, but interestingly enough breadth numbers are not all that overbought. With prices at new highs we have a distinct divergence in place. Some fund managers and analysts worry about the lack of attention to market valuation, saying a valuation bubble is being created before our very eyes. The stock market is basically at all time highs and has been eclipsing that mark on a regular basis, save for the small caps. We don’t know when a peak is at hand until afterward, but certainly we are on guard for the warning signs.
Earnings last night from Disney were terrific as the company guided up for earnings and offered a big buyback of shares. Paypal beat but offered very poor and conservative guidance, the stock is getting whacked this morning. ARM Holdings hit one outta the park, Wynn pushed higher as well by more than 3% following a decent earnings report. Tonight we’ll hear from Pinterest, Cloudflare, Dexcom, Affirm, Expedia, Take Two and Bill.com.
Strong day for the bulls as they fought off poor breadth and some distribution in other areas. Helped by strength overseas, stocks continue to pushe higher and nearly closed above the 5K milestone for the SPX 500. It’s been a long time coming here for that level, a couple months at least. We continue to see good price action and decent turnover as investors clamor for more risk.
After yesterday’s strong breadth day it would have been nice to get some followthrough. While it was technically an up session for breadth it was not clean at all. In fact, the oscillators remain in negative territory but the price oscillators went up. Strange situation, but we have always said trust the price action first, look for other indicators to support it.
Turnover was better than Tuesday so we conclude this to be an accumulation day. While it was not all that impressive, a win is a win. We had seen strong turnover last week so it’s not surprising to see the pace of trade slow down a bit. There is still pretty strong liquidity here in this market which may last a few more weeks.
4,999.8 was the high of the day in the SPX 500. Close enough? Probably not for some, but it was a gallant try. We remain bullish if the trend continues and any dips are being bought. The two dips early in the week were wiped out yesterday in impressive fashion. Certainly the strength of the bulls appears to support higher prices but the VIX remains dangerously low, something to watch for.
What’s it mean?
With the weak internals Wednesday that did not support the price action it is hard to call this a winning day. But, price moved up and we closed near 5K on the SPX 500 and a new record high close. Can’t argue with price action. The VOLD and ADD show what trouble the market is having to support the strong price action. We like to see these work in tandem, strong price action and internals, but not to be yesterday. VOX remains dangerously low while ticks were mostly green on the day. Good news for the rest of the week.
The Dynamite
Economic Data:
- Thursday:jobless claims, WASDE
- Friday:
Earnings this week:
- Thursday:WMS, CYBR, HSY, K, MAS, RL, SWI, AFRM, NET, SYNA TTWO, TEX
- Friday:AMC, ROAD, PEP, SXT
Fed Watch:
Nothing much this week but Chair Powell is interviewed on 60 Minutes for Sunday evening. This past week saw the committee stand pat on monetary policy but they are contemplating the right timing for rate cuts. That is likely to come this year but not as soon as the market would like. The data shows inflation is still too high and the economy is running strong. Not an environment that needs rate cuts.
Stocks to Watch
Volatility – The VIX remains low under 14%, a dangerous level as a pop in volatility can occur at anytime, unexpected. You might recall some years ago just after Chair Powell took over there was a massive move higher in volatility, it was the month of February. Something to watch for.
Earnings – A deluge of earnings this week as we get a sampling across several areas including retail, industrial, technology, healthcare and entertainment. Disney, McDonalds, Lilly and Pepsi will be in focus.
Interest Rates – Following Friday’s huge labor report which showed more than 330K jobs created, interest rates popped higher as the market starts to price in fewer rate cuts down the road, as this was telegraphed Wednesday by Fed Chair Powell.