The Fuse
Equity futures are moving higher this morning after a nice start to the week. We end Friday with some earnings from a few banks which may help drive the action into the weekend. Stocks are also awaiting word on the inflation front with CPI out tomorrow morning. A few Fed speakers will be out talking economy this week and Chair Powell will visit Congress one more time this morning.
Interest Rates are dropping on the long end of the curve this morning as fixed income bargain hunters step in to purchase bonds. Yields have been trending, the market obviously anticipating the rate cut cycle will begin sooner rather than later. Fed funds now slightly predicting three cuts rather than two, this would be strengthened with a low CPI report in the am.
A strong bid under the markets this morning but we’ll see how long that will last. Gold is up nicely as is silver, crude oil is flat as is the dollar index. Overnight saw a mixed picture in Asia. Japan gained .6% while Hong Kong and Shanghai fell. The Stoxx in Europe was slightly higher, German 10 year bunds fell 4 bps which is spurring a modest rally in US fixed income. Nasdaq and SPX 500 are coming off another record close.
Earnings season officially kicks off tomorrow am with Pepsi and Delta reporting. JP Morgan along with Wells Fargo and Citi wrap up the week on Friday before the open.
Part one of Chair Powell’s testimony on the ‘Hill went off without a hitch. Not much fanfare with the Chairman being stoic and bold about monetary policy. There was hope he would signal when a rate cut would happen but that was clearly a dream. Regardless, bonds sold off hard as rates rose up, curiously so because inflation reports are coming up later in the week which might be bond friendly.
Breadth was miserable again, the small caps with another dreadful performance. The IWM just cannot seem to put together consecutive up days without pulling back. The 200 level remains good support but there is little to help this index rise up if rates are rising. Oscillators are split again, Nasdaq still green but barely. New highs are expanding again.
Heavy volume again on the DIA as that index showed us a distribution day, yet the Nasdaq with higher volume had accumulation. This is divergence or bifurcation. The SPX 500 was down a but but IWM still has stronger turnover on the down days. If the 200 level breaks hard this index has a ways to move down.
If Nasdaq holds up longer, who knows how that might sway the other indices to join.
SPX made new ground and nearly touched 5,600, but did back away on the close. We’ll go ahead and call 5,500 and 5,550 as support for now, and much deeper layers of support below. Nasdaq remains robust as money flows into that index. 19.3K is really strong suppor, 19.7K and above there we’ll call it 20.2K on the gap from last week.
The Internals
What’s it mean?
The internals continue to react poorly on the daily action and simply look like some disaster is on the way. The VOLD just horrible, ADD is very negative again while ticks were heavy red all session long. VIX ticked up a bit. We are nearly mid month and up strong for two indices, can it last? The internals tell us no.
The Dynamite
Economic Data:
- Wednesday:Chair Powell testimony (day 2), wholesale inventories
- Thursday:CPI, jobless claims
- Friday:PPI, Michigan sentiment
Earnings this week:
- 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.
