The Fuse
Equity futures are pulling back modestly this morning after a very strong effort Wednesday saw the Nasdaq and SPX 500 post record highs once again. The SPX 500 is up seven consecutive sessions with new highs coming on six of those days. Two big inflation reports with the CPI this morning and PPI Friday before the open. Stocks may move on these, but it’s possible the market ran up Wednesday in anticipation.
Interest Rates are mostly unchanged across the curve as fixed income investors await the June CPI report this morning. Bond yields have been trending down of late but remain in a volatile range. The 2 year yield is down at 4.64%, levels not seen since late March. The large drop in yield last week following the jobs report signaled the market is trying to price in a third rate cut in 2024. Chair Powell was sanguine on the topic this week.
Stocks in Europe gained a bit of ground overnight while Chinese and Japanese stocks were up very strong, about 1% higher for each market. Crude oil is up a bit as is spot gold, silver remains on its recently hot run higher. The dollar index was lower. Chair Powell finished up testimony yesterday and gave few hints on monetary policy. The next meeting is the end of July and if June inflation reports come in line then a discussion on rate cuts is going to be necessary at the next FOMC. As of now, the market is trying to push the Fed for more cuts, but they will follow the data.
Earnings out this morning with a miss by Delta and in line guidance, while Pepsi beat bottom line but missed on revenues due to sluggish demand. The company reaffirmed 2024 guidance. Tomorrow some of the big banks will hit including JPM, WFC, and C.
That was quite the rally despite only mediocre data and a repeat by Chair Powell of yesterday’s testimony. Perhaps many were positioning themselves for a much better than expected CPI number, which comes in before the open. Expectations are for roughly .1% but that is rounded higher, the actual estimate is a bit below there. Inflation has been coming down, the bond and stock market have noticed and so has the Fed, which might actually deliver a rate cut (or 3) in 2024.
After some very suspect breadth the bulls finally made an effort, and with just under a 3-1 bullish rout. Of course this is just one day, but cumulative volume breadth remains strong, and today the oscillators started turning up again. New highs are ramping up as well, that is a bullish sign. For months the complaint was only a few stocks were driving the action (noted several time in the equal weight vs main), but with a more broad rally perhaps a healthy sign that all stocks can start participating.
Pretty strong turnover especially towards the end of the day that gave the bulls a leg up. Strong internals (see below) along with brisk volume on all issues shows a nice expansion across sectors. Recent poor volume trends in the Russell 2K and Industrials may be over for now as they look to turn the corner.
For the most part, volume has been rather slow but it may pick up during the coming earnings season.
New highs again for the Nasdaq and SPX 500 as the bulls stampeded right through. The SPX closed for the first time above 5,600, an astounding move and mark that puts this index far and away from any near-term support. We still see 5,500, 5,450, 5,400 and 5,375 as layers of support, the Nasdaq also with a strong layer at 20.3K and then 19.7K.
The Internals
What’s it mean?
Now THAT’S more like it! The bulls just stomped around all day long as the rally started and finished very strong. Check out the VOLD here, an amazing move straight up with the ADD and ADSPD as well. That is impressive. We saw a slew of green ticks, especially in the Nasdaq, put/calls headed lower and the VIX was steady. With news out today on CPI and tomorrow’s PPI it sets the stage for something big to occur.
The Dynamite
Economic Data:
- Thursday:CPI, jobless claims
- Friday:PPI, Michigan sentiment
Earnings this week:
- 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.
