The Fuse
Stock futures are rising as rates are falling in front of this week’s Fed meeting. A policy decision will be announced Wednesday, the market is expecting another cut in the funds rate but after that a pause is likely for an undetermined time. Projections will be carefully analyzed as they will likely change since September.
Interest Rates are coming down as bond buyers pick up some bargains. Tech stocks are cueing off this drop in yield, we should also see small caps start participating soon if the trend in yields turns lower.
Stocks are heading higher but in Europe the STOXX fell .1%, German 10 year bunds rose 1bp while the US treasury 10 yr fell 1bp. The dollar also fell .1%, Stocks in Asia were mixed, Japan was flat but in China the Shanghai index was off by .2% and Hong Kong down .9%.
Earnings are sparse this week but we’ll hear from Nike, ACN, Micron and FedEx along with Carnival and Jabil. After this week the releases should slow to a trickle.
The big event of course the Fed meeting this week. This is the last one of the year and the committee will likely cut rates one more time but also signal a pause in future policy moves. Also, less than two weeks before Christmas and retailers are getting nervous about late shoppers. Will they come through once again?
Breadth was just awful again. This indicator cues off the small caps, which has 2000 issues, which cues of the bond market, when yields are rising that is no bueno for the small caps. Fortunately, (I think), this indicator is super oversold and due for a rally at some point. Oscillators are mildly in negative territory, so perhaps a respite is on the way. New highs are not impressive as much but are still leading over the lows.
Volume trends are picking up, and they are not bullish. But, as we head into a Fed meeting and options expiration we should see some heavy turnover. Friday’s expiration is going to be huge, many options will expire worthless but also a slew will be exercised. Lately the skew has been to selling volume in the indices, which tells us the trends are bearish but that can change quickly.
Support levels are still being tested or have been tested and failed. The Industrials have been down sharply over the last couple of weeks and now sits below the 20 ma, as does the IWM. That is problematic, but if the Russell 2K can catch support there is a good chance of a market rally to the end of the year. Some rebalanciing will happen before the end of 2024.
The Internals
What’s it mean?
No matter if the market is rallying or not, the internals just never seem to improve. These last two days have been atrocious, not question the price action has followed the lead. VOLD is in a world of hurt, this indicator (top left) remains bearish as sellers hit the offer at the end of each trading day. The ADD, which we have been referencing for weeks as poor remains in the doghouse. Ticks were more red than Santa’s suit on Friday, indicating lots of sell programs. Just no good and could lead to more bearish action.
The Dynamite
Economic Data:
- Monday:Empire State Manufacturing, SPX flash PMI services and manufacturing
- Tuesday:Retail sales, Industrial production, cap utilization, home builder confidence
- Wednesday:Housing starts, FOMC rate decision, Chair Powell press conference
- Thursday:Jobless claims, GDP revision, Philly Fed, home sales, leading economic indicators
- Friday:income/spending, PCE, consumer sentiment
Earnings this week:
- Monday:MAMA, MITK
- Tuesday:HEI
- Wednesday:GIS, BIRK, JBL, TTC, MU. LEN
- Thursday:ACN, DRI, CTAS, FDS, PAYX, CAG, KMX, NKE, FDX, BB, SCHL
- Friday:CCL, WGO
Fed Watch:
We have come to the last Fed meeting of the year and in all likelihood the committee will cut rates another 1/4 point. I suspect there will be rigorous discussion and dissent over policy this time around. Inflation remains sticky and the FOMC is showing some concern that further easy money policy is going to stimulate inflation and recreate another spiral. The Fed needs to temper enthusiasm, which may feel like a splash of cold water in the face.
Stocks to Watch
Volatility – The vix futures will roll next week along with SPX futures, which move to March. The VIX is extremely low here, under 14% and has quite a bit of separation from the future (about 5% differential). Look for some movement this week.
Options – A huge option expiration week coming up Friday that could bring a slew of volume and movement post Fed meeting.
Bonds – They have been slowly selling off recently and if the Fed does cut rates the inversion is likely to over for the first time in many months. This simply means the yield curve is back in alignment, but for how much longer?
