The Fuse
Stock and commodity futures are rallying this morning, trying to push the markets into higher ground. Monday was another record-breaker for Nasdaq and SPX 500, all eyes are now on the Industrials which are about 2% away from all-time highs. Given the overbought condition in the short term (9-day) there could be some volatility in our future.
Interest Rates are modestly higher this morning as the fixed income markets prepare for Chair Powell’s statement and testimony on Capital Hill. No doubt Congress will be feisty and trying to set up advantages for themselves with a big election coming up in four months. Yet, Chair Powell is skilled at staying on point. Fed futures remain strongly convinced of 2 perhaps 3 rate cuts in 2024.
Overnight Japan rallied to a new high while in Europe France and Germany indices both fell. Gold is barely up while crude’s corrective action continues. The US dollar is steady in front of Powell’s testimony. Earnings season is getting underway this week in a small way but kicks into gear next week.
Earnings season gets underway this week with banks on Friday, Delta and Pepsi Thursday am and a few early reports. The one question we may have is have stocks run ahead of good earnings? We’ll soon find out.
The big event will be testimony by Chair Powell today and tomorrow. Investors and traders are hoping some language about monetary policy, but don’t hold out hope. The committee works together, this is not being driven by one person and they are more interested in the data. That will be the theme of this testimony.
Breadth was really cooking early in the session Monday but stalled out. The Russell 2K was really the culprit, starting higher by more than 1% and then fading throughout the day. That’s fine, a positive for the small caps is still something to marvel at, considering this index has been hard-hit for most of 2024. A followthrough for IWM would be encouraging and probably accompanied by better breadth. Oscillators remain positive.
Turnover was quite low, save for the DIA as buyers were not chasing stocks higher. Yet, we still printed new highs in the SPX 500 and Nasdaq once again, the Industrials are trying to make a run at it. With some more volume in that index we might see new highs at some point during earnings season.
However, stocks continue to pause here.
Strong support for the SPX 500 at 5,400 and 5,375, but being about 170-200 points above that level it doesn’t appear to be much of a threat. The 10 ma at 5,450 and climbing each day is a bit more relevant. As for Nasdaq, 20K is breakout point but with strong price action the last three sessions and an overbought condition it is a tough call to make. However, we expect a test of lower levels at some point.
The Internals
What’s it mean?
Pretty odd day for the internals, a mixed session for the indices reflects the sentiment. VOLD climbed end of day, ADD was pushing lower, hence the dip in TRIN. Ticks were odd, Nasdaq/Q was a spread out with red but the index was up strong. VIX pushed lower on the day, continuing the floundering of volatility. It’s hard to see the markets moving substantially lower with the VIX in the tank.
The Dynamite
Economic Data:
- Tuesday:small biz optimism, Chair Powell testimony
- Wednesday:Chair Powell testimony (day 2), wholesale inventories
- Thursday:CPI, jobless claims
- Friday:PPI, Michigan sentiment
Earnings this week:
- Tuesday:HELE
- Wednesday:PSMT, WDFC
- Thursday:DAL, PEP, CTAS, CAG, PGR
- Friday:JPM, BK, C, FAST, WFC
Fed Watch:
Two big important days this week with Chair Powell’s bi-annual testimony in front of Congress and the Senate. The Chairman is likely to reiterate the same words as the last statement and last week, not willing to share if/when the committee is willing to cut rates. He is likely to talk positively about jobs and lower inflation. We’ll see how the markets respond.
Stocks to Watch
Fed Funds Futures – Market players are eager to get the Fed cutting rates. Chair Powell is testifying in Congress this week and that might give us some clues as to policy. More importantly, inflation reports this week will give us more information.
Interest Rates – Without much fanfare the 10 year yield has fallen sharply from 4.5% to 4.23%. That is a full rate cut and the futures have responded in kind. The 4.2% level is solid support from last month,, will we break it? If so, small caps will lead the charge.
Banks – Large banks like JPM, WFC will report this week. They have already had a big run so perhaps this is a sell on the news event.
More banks report in the coming week.
