The Fuse
Equity futures are bouncing back following yesterday’s beating. We have European stocks flat this morning while equities in Asia are on the decline. The SPX 500 is up slightly for the week while the Russell 2K has been hit the hardest, down nearly 3%.
Interest Rates
Not much on the news front this morning but stocks have not been treated kindly this week by the inflation reports. Next week’s Fed meeting is another important one, the committee will likely discuss the recent data and remain vigilant in their fight against inflation. Crude oil is backing off the $81 level, gold is up modestly as is the US dollar.
Earnings last night from Adobe were strong but guidance was a bit weak. Ulta showed a strong quarter but the stock ran well ahead of these numbers, the company gave strong guidance. This am Jabil beat earnings estimates but missed on the revenue side.
<Volatility picked up yesterday after a poor retail sales report and higher. That means the Fed is likely to continue using cautious language into next week’s Fed meeting and beyond. Perhaps the market, (fed funds futures) which is expecting four rate cuts this year but remains a bit aggressive might soon dial it back. Next week’s Fed meeting may clear things up and narrow the deep divide.
Breadth was atrocious on Thursday, blame the Russell 2K and the equal weighted SPX 500. Some stocks were higher on the top end of the market cap spectrum, like Apple, Google and Amazon. However, the rest of the market was under assault by the bears, and as we head into the second half of the month and near all time highs, if support below does not hold then the uptrend may be under pressure.
Turnover was on the rise yesterday as the markets notched a heavy distribution day. That is professional selling, big institutions are pushing stocks out the door and raising cash. With a lack of a bid later in the session the bulls had run out of bullets, and sellers were taking advantage. Frankly a nice consolidation for the rest of the month would be ideal.
Markets made a nice run at record highs but could not hold on to the end. We still see good support at lower levels, the Nasdaq 100 should hold at 18K while the SPX 500 may see a touch at 5,100 or so. We may just be locked in a rangebound market for awhile.
The Internals
What’s it mean?
We finally saw the internals line up with the market action, and believe me it was not a pretty scene. Certainly the buildup this week with poor breadth, higher turnover and just a bad feel for the market was going to weigh on investors. Today’s PPI, a hot number was enough of a reason for bulls to take their hands off the stove. VOLD was down all session long, and the ticks were a rout by the bears, see all that red, especially on the Nasdaq. Put/calls were higher and the vix was up but not huge, definitely a distribution day. Back to the drawing board for the bulls.
The Dynamite
Economic Data:
- Friday:Import/export prices, industrial production, Michigan sentiment surveys
Earnings this week:
- Friday:BKE, JBL
Fed Watch:
No Fed speakers this coming week as the committee prepares for the next meeting in just over a week. This past week had Chair Powell testifying in front of Congress twice and he reiterated the committee’s pleasure with falling inflation, strength in the economy and the labor market. However, the FOMC is going to be very careful and slow when it comes to rate cuts, which the Chairman said will happen at some point.
Stocks to Watch
Super Micro – The high charged semiconductor name will officially be a member of the SPX 500 after the close Monday. It may be a sell the news event.
Apple – The biggest company in the world has been struggling of late but did manage to post a gain Friday.
The chart is challenged here but when the expectations are so bad is when the stock starts performing well. Contrarians know the name well!
Inflation – February readings from CPI and PPI will be out this week. Recall last month’s numbers were pretty hot but that did not stop the stock market from reaching new highs. However, we are in a seasonally weak period and another hot reading might derail the rally.
