The Fuse
Equity futures are bouncing back this morning after another violent day of trading. Some big earnings last night were fanning the flames but some stabilization has been seen thus far, volatility is lower into the Fed meeting today. It should be quite an interesting trading session!
Interest Rates are slightly lower as yields are moving downward again. It is interesting to see the commitment to bond buying in front of a Fed announcement, seeing as though policy is not yet moving towards the dovish side. The 10 year is pushing against 4.1% and can really get moving with a couple of closes below that level. The 2 year meanwhile just pushed through to the 4.3 level, the inversion is now minimal. Fed funds still looking for nearly 3 rate cuts in 2024.
A strong bid in the markets this morning as the recent flurry of volatility seems to be opening up opportunities. Traders are taking advantage of the deep drops but the chart shows a rather difficult time currently. If volatility starts trending down the uptrend may be re-established, but that would take some time.
Gold is up nicely this am, crude oil is sharply higher after an Isareli attack on Hezbollah killed an Hamas leader. Stocks in Europe gained ground (nearly 1%) while Japan climbed 1.5%, China’s markets (Hong Kong and Shanghai) both up more than 2%.
Earnings from Microsoft last night were good not great and the stock was hammered down in the aftermarket, but did rally back. AMD came out swinging with a strong quarter while Starbucks missed on most metrics, the idea is the bad news is already priced in. This am saw strong earnings and guidance from Dupont, Boeing, Altria and Humana out later this morning.
Another head scratching day, wondering when the markets are going to get in sync. The large cap stocks have been under pressure for a few weeks now but the small caps have mostly been untouchable. A strong bid was there all session, including financials, banks and a few other groups. It’s been an amazing month for the Russell 2K and there is one more day left to put a bow on that performance. For the Nasdaq, another miserable session on higher volume – that means professional selling, the days have been stacking up. That usually means more down to come.
Breadth was positive but not by much, in fact at the highs of the session better than 5-1 bullish but at the end only 17-10 positive. We can thank the small caps once again for the strong breadth, but the oscillators are just barely back to positive. There is no rhythm here in the markets, new highs though have expanded a bit over new lows and that is still a positive development.
Volume was weak on the indices that were up (DIA, IWM), and strong on the indices that were down (QQQ, SPY). That is a red flag if I’ve ever seen one, but perhaps the market is holding its breath waiting for word from the Fed today. That is probably the case, further we should see volume expand more when more earnings reports are revealed later in the week.
More probing of the lows in the Nasdaq and SPX 500 on Tuesday. We see 5,400 on the SPX 500 holding firm, if that fails to hold 5,375 and then down to 5,300 would be next. The Nasdaq sees the 100 ma holding firm but just barely at 18,700. That index has more support down at 18K and 17,500.
The Internals
What’s it mean?
In looking at the internals you would have thought a positive day across the board, but clearly that wasn’t the case. VOLD was up modestly, ADD was strong but the VIX was also rising, that is bearish. A close above 17% was not in the cards at the start of the day, but the ADSPD was steady thanks to some buying in small caps. Ticks were red most of the day on both indices but check out NYSE, strong buying late in the day with buy programs. That is telling and could lead the bulls the rest of the week.
The Dynamite
Economic Data:
- Wednesday:ADP employment, employment cost index, PMI, pending home sales, FOMC interest trade decision, Powell press conference
- Thursday:Jobless claims, US productivity, US PMI, ISM manufacturing, construction spending
- Friday:Labor report, factory workers
Earnings this week:
- Wednesday:ADP, BA, CNHI, DD, KHC, MAR MA, RDWR, TKR, AMZN, CAKE, EBAY LRCX, META, QCOM
- Thursday:ADT, COP, CMI, ETN, HSY K, LH, SHAK, UTZ, AAPL, BZH, NET, DASH, ROKU, SNAP, OLED
- Friday:CVX, XOM, CHD, LIN, PIPR
Fed Watch:
The day has arrived, could this be the change many have been waiting for? The Fed kicks off their next two-day meeting on Tuesday and is likely to leave policy on hold one more time. The FOMC has not moved rates in a year but that may be changing with the September meeting, which fed futures are pricing in a 100% chance of a cut. We’ll be listening to the language and if the committee sees the trend in lower inflation continuing, the strength in the economy and the risk of imbalances in the system.
Stocks to Watch
Bonds and Rates – With the Fed meeting this week there is likely to be a sea change in bond yields, which could move sharply lower if the statement is perceived as dovish. No expectations for a rate cut this time around though, but certainly in September. We’ll be watching the 4.2% level on the 10 year.
Apple – the big device company reports earnings this week and while the stock is off all – time highs from a few weeks ago, there is the promise of an AI phone coming which could be a massive refresh of iPhones worldwide. This may not be a great quarter but it’s all about the guidance.
Microsoft – The stock was hit hard last week following the CrowdStrike debacle. Can they get their mojo back, and will they continue to see expansion in AI, spending and data? These areas lifted Microsoft last quarter and will be watched carefully. Looking for a high single digit gain in earnings this quarter, the stock is off 10% from recent highs.
