The Fuse
Equity futures are rallying modestly again as the markets attempt a seventh straight up session. But the Fed concludes their two-day meeting today amid plenty of uncertainty about how this pivot will unfold. Most are speculating a 25bp cut in the funds rate while a host of others believe a 50bp cut is right and would send a strong message the Fed is concerned about slowing growth. Though the data does not seem to portray that argument well.
On Fed day we often see large moves with bonds as traders try to position themselves properly. Bond volatility is elevated too but we’ll see that drop following the press conference. Nevertheless, yields have come down in a big way, far more than anticipated which seems to portray the markets pushing the Fed for more and quicker rate cuts. I just don’t see that happening in this scenario, the market is going to need to adjust to whatever Chair Powell has to say. Fed futures see a nearly 2-1 chance of a 50bps cut today. We’ll be paying close attention to the new projections out with the statement.
Stocks are up following two positive sessions to start the week. In Europe the STOXX declined modestly while Shanghai rallied nicely, up .5% as did Japan. Hong Kong exchange was closed. After strong rallies for crude the last few days the commodity is pulling back a bit, gold is higher by 11 bucks at this writing. The dollar index fell .2%.
Earnings are sparse this week with the bigger names coming Wednesday and Thursday in General Mills, FedEx and Lennar.
Stocks put in a marginally good performance yesterday, not many wanting to make a bold commitment before the Fed rate decision today. It makes sense, the big move may be coming after the announcement has been made. For its part, the SPX 500 did tag a new high but backed away considerably, the Russell 2K performed well and is on the verge of a breakout chart.
Another good day of breadth is what the doctor ordered. That is a big deal as the market approach new all-time highs, we could get a bit of an extension rally before exhaustion takes place. New highs continue to push up, oscillators are positive at 137 on the NYSE and Nasdaq, more room to run. But the worry here is will there be a sell on the news effect.
Volume trends were down again Tuesday, likely waiting for some options activity later in the week and price action following the Fed’s meeting. When it concludes and a press conference starts, we should see lots of volume hit the tape. Volatility trends are bearish which means if there is a bid in the market overnight we could be looking at a massive rally ensue if the VIX gets hammered following the news.
Support levels are not far below current price levels, and that means any pullback is likely to be shallow. However, the Industrials could see a 1% pullback and still be in an uptrend, Nasdaq is in a no mans land currently, it could go either way and really punish the bulls or bears severely. spx 500 remains the top index but is only 1% above the 20 day moving average.
The Internals
What’s it mean?
Internals were positive but are looking rather tired. The VOLD up but not like the previous days, while the ADD tumbled as well, but the TICKS for NYSE and NASDAQ posted nice gains. Put/call continues to stay lower, that is bullish while the VIX did rise up, likely due to uncertainty over the coming fed decision. ADSPD did not show much strength, though the Russell 2K did have influence on the breadth.
The Dynamite
Economic Data:
- Wednesday:Housing Starts, Building Permits, FOMC interest rate decision, Chair Powell Press Conference
- Thursday:Jobless Claims, Philly Fed manufacturing, existing home sales, leading economic indicators
- Friday:N/A
Earnings this week:
- Wednesday:GIS,SCS
- Thursday:DRI, CBRL, FDS, FDX, LEN, MLKN, SCHL
- Friday:N/A
Fed Watch:
It’s time for the Fed meeting this week, and all bets are on that we will see the first rate cut in four years since dropping the rate to zero to counter the aftermath of the covid pandemic. With supply chain issues and a flood of money in the system it was difficult to fight off inflation trends, but they are winning now and see a clear path towards a soft landing. The market is ahead of the Fed though and that could mean a sell on the news if they are not given what is expected.
Stocks/Issues to Watch
Federal Reserve – It is widely expected the Fed meeting will conclude embarking on a new and dovish interest rate policy. After nearly 15 months of extreme tight policy it seems the Fed is ready to loosen, but not as aggressively many would believe. Let’s watch the fed futures respond.
Options – A big expiration and rollover is upon us this week. We often see quite a bit of movement with futures and volatility during this triple witching time, let’s see if there is some opportunity to trade it.
