The Fuse
Equity futures are starting higher this morning as the markets try to shake off a volatile mixed session from Monday. Today starts a two-day Fed meeting with a policy decision due out Wednesday at 2pm EST. Heavy earnings start pouring in tomorrow and will no doubt shake up the indices. Strength in small caps however could lead the way.
Interest Rates are flat this morning as fixed income investors await tomorrow’s Fed decision on policy. They are hopeful the committee will allay the fears of inflation and yields could drop a bit more slowly. The 10 year german bund is holding steady at 2.37%, the 2 year at 4.4% remains aggressive vs the Fed’s stated policy while fed funds futures still see 2 1/2 cuts this year.
There remains a solid bid in the market that carried overseas, the STOXX in Europe was up modestly while Japan gained, but Hong Kong and China were down. The US dollar index rose, gold is firm while crude oil shows slight losses. The market remains vulnerable here until volatility starts to settle down. Realized volatility is on the rise.
Earnings were very strong last night from Sprouts Farmer’s Market, the stock is up huge today. This morning Pfizer beat and raised guidance, Corning and PG will report later along with Paypal. Tonight we’ll hear from Microsoft and AMD along with Starbucks and Arista Networks and Pinterest.
A fairly sleepy session for the markets as we saw a very tight range and little movement away from the mean. It makes sense, volatility was down most of the session or was simply coming down. Much of Monday was just a hangover effect from Friday’s option expiration, coupled with a ‘hands off’ approach to trading the day. Eager market markets took out stops up and down the market today but that activity may be shelved later in the week as more volume picks up.
Poor breadth all session long and that tells the story of the market action. about 16-12 negative and with the IWM bearish most of the session, it seems buyers were taking the day off. That is not unusual, we have rarely seen multiple days in a row when the stock market has been up, especially when volatility is elevated. Oscillators came off a bit yesterday, New highs still dominating new lows.
Much lower turnover yesterday, something you don’t mind seeing if there is market weakness as we had experienced. Simply put, the down session was a not a day of distribution, or large institutional selling. There was not much of a catalyst to sell off this market and that has not happened as of yet, but clearly traders and investors are curious about direction. A higher volume move up would be bullish from here.
That 50 ma continues to hang in there as good support. A rather poor close but the markets notched a same high, higher low during the session which may prove to be prescient. Nasdaq had a much better day with stronger breadth and good price action, but did fade end of day. Later this week might see big moves by Nasdaq as big tech earnings are released. The 100 ma remains good support but if that does not hold this week there will be problems for the uptrend – it’ll be over.
The Internals
What’s it mean?
Internals were rather dull all session long, the VOLD barely budged all day, the ADD crawled back to the zero line, VIX did come off its highs of the session. There was simply no energy on Monday, ticks on the Nasdaq were red, similar story for the NYSE. This sets up for some followthru on Tuesday if the market does not turn back up. Put/calls are starting to move higher but as long as vix stays low the bulls are still in charge.
The Dynamite
Economic Data:
- Tuesday:Home prices, consumer confidence, JOLTS
- 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:
- Tuesday:GLW, LGIH, PYPL, PG, QSR, SYY,AMD, CZR, FSLR, LC, MSFT, QRVO, SWKS, SBUX
- 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.
