The Fuse
Equity futures are getting mauled this morning as the selling continues. Yesterday’s about face came as a surprise but not to the bond market (see below), which may now be pricing in recessionary fears. Stocks are off to a rough start in August but as we know money flows are often strong to start the month so we may see that improve next week.
Interest Rates are falling again as bond buyer are out in force. Fixed income is the place to be and whether it is some short covering or some other source of funds the yield curve is tightening up and flattening out. That could lead to recessionary fears fanning the flames if today’s job report is weak.
Stocks around the world responded to the US stock market and fell sharply overnight. In Europe the Stoxx was down 1.6% while in Asia Japan’s Nikkei was down 5.8%, the largest daily drop since March 2020. Hong Kong down 2.3% while Shanghai was off .9%. Gold is ripping higher, up 1% crude oil is flat. Followthroug is key here but the equity futures have already broken yesterday’s lows, it could be a long day for the bulls.
Earnings from Apple were okay but the stock is barely budging. Amazon was another story, the stock is being poleaxed today as their guidance and AWS metrics disappointed. Just another Mag 7 stock that gets pasted. Intel is in a world of hurt too, they missed and suspended their dividend. DraftKings missed the mark but Roku did beat downward expectations. This morning saw a miss from Chevron and a slight beat from ExxonMobil.
Markets were ripped hard yesterday with heavy volume and very poor price action. While stocks barely finished off their lows of the day, the damage was widespread. There is just not enough buying power here to bring stocks up, and all the cheerleading we hear in the financial media is not enough to stoke buyers into making a commitment. There is some danger out there if volatility continues to rise.
One strong day and then is fizzled out. That is not good news if you’re a market bull. The rally on Wednesday gave everyone plenty of hope, but then it got crushed under the weight of heavy selling. With elevated volatility in the 16-19 range we can expect to see lots of back n’ forth. But the down days feel much more painful than the joy of the up days, and that eventually begins to wear on you, if you’re on either side of the tape. The summer is a grind until we get to September, so play is cautiously.
Breadth was poor but not as bad as one would think, considering the Nasdaq lost more than 2% and the Russell 2K was smashed by more than 3%. Yields fell sharply as the 10 year was pulled all the way down below 4%, levels not seen in months. The poor breadth helped to push the Nasdaq oscillator into negative territory again, the NYSE is nearly there. New lows are starting to expand, we need to watch that indicator carefully.
A heavy day of distribution as stocks sold off hard following Wednesday’s terrific gains. Just about all of those wins were reversed yesterday on heavy turnover, which means another distribution day is tacked on. These have been stacking up lately, which tells us institutional selling is starting to have an influence. Many buyers will try and step in on days when Microsoft is getting killed for instance, but that is the wrong approach. Heavy volume when the market is down is a red flag warning.
Giveth one day, taketh the next. Bulls were not in the buying mood yesterday as Wednesday’s spectacular day was retraced fully. Small caps took the most punishment Thursday, there is support for the IWM down near 212 but below there would be trouble. SPX has a wide range of 5500 to the lows around 5370, that could accelerate the selling if that level is crossed. Nasdaq volatility is extreme and is at levels not seen since October 2023.
The Internals
What’s it mean?
Nothing but red and negativity all session long. Those ticks told the story, and since we did not have any followthrough the buyers from Wednesday had an easy decision – hit the sell button. There was literally no bid at all Thursday. VOLD and ADD were down all session, the put/call is now on the rise. VIX topped out at 19.48 but there is still a chance for lower volatility to come into play but a floor needs to be established first. For now, the range is wide, as would be expected.
The Dynamite
Economic Data:
- Friday:Labor report, factory workers
Earnings this week:
- 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.
