The Fuse
Equity futures are mixed with the SPX 500 and Nasdaq 100 lower along with the Russell 2K, the Industrials are modestly higher. A stronger move in rates is acting like teflon in the markets but earnings are coming in pretty strong and that may help deflect some of the negativity from fixed income.
Interest Rates are pushing higher as the recent buying in bonds has expired. It seems bond investors are wary of the Fed’s next policy decision at their first meeting in 2025. That is next week, and we may hear the committee suggesting a pause in dovish policy until some better reads on inflation.
Stocks in Europe were unchanged, the STOXX flat on the day, the dollar climbed though as German bund yields declined, the 10 yr US treasury was unchanged. Gold is slightly lower while crude is bouncing. Stocks in Asia were mixed, Japan up .8%, Shanghai up .5% but Hong Kong dropped .4%.
Earnings last night were pretty decent from Alcoa and Discover, this morning a blowout from GE and strong guidance from Alaska Air may pace the transports, we’ll also hear from American Airlines. A good beat from Elevance as well, Union Pacific later in the morning. Tonight we hear from Texas Instruments, CSX, Intuitive Surgical, tomorrow American Express, HCA, Verizon and Ericsson.
Stocks pushed higher as the SPX 500 closed just under a new all-time high but it was not all that special. What masked the strong price action was a horrendous breadth, poor volume and weakness in the internals. Sometimes it doesn’t matter when price action is strong but other times it does, and if there is another weak session coming up the market will be in trouble, at least in the short term./span>
Breadth was rancid from the start, we can thank the small cap names for the miserable breadth. The Russell 2K was down on the day and was pushed lower by higher interest rates, which is like poison for the small caps. The recent pullback in rates was seen as a relief for small and midcaps, but these stocks are being stung by the higher cost of borrowing. If we cannot see the 2 and 10 yr falling (yield) then it appears there will be damage to the uptrend.
Volume was really good in the am but petered out as the trading day wore on. Certainly we can expect to see a bit of rest or pullback for the markets after the bulls stomped all over the bears recently. Today is still considered an accumulation day and that means more buyers coming into the market to add stocks. Can this continue? It sure can, but eventually the buying wears and we are left with backing and filling, or a simple pullback.
Stocks are headed back up and may move to test those old highs soon. However, that means the market indices would be at/near overbought readings, and often the first test is a failure. Small caps took it on the chin Wednesday with very poor action all day long. The industrials were very impressive though with good volume to boot. It has been the strong index for the past week or so.
The Internals
What’s it mean?
Internals were a mess yesterday, the VIX even climbing for the first time in a week. The VOLD and ADD show the difficulty of the market to drive higher. Small caps were weak all session, the ADD poort while the ticks were mostly red all day, complete opposite of Tuesday. This could be bad news for the market trend next few sessions.
The Dynamite
Economic Data:
- Thursday:Jobless claims
- Friday:Existing home sales, consumer sentiment, PMI services and manufacturing
Earnings this week:
- Thursday:GE, AAL, HBAN, ELV, ALK, UNP, TXN, CSX
- Friday:VZ, AXP, HCA, ERIC, MOG.A, NEE
Fed Watch:
The Fed has lots to consider with some benign inflation readings and strong jobs report. The next meeting is in about 10 days, this will be the first one of 2025 with some new voting members on board. Most on the committee are reticent to move rates right here with the economy very strong, but if inflation moves lower then we could certainly see the markets looking for cuts in 2025. As it stands, maybe 1-2 at most.
Stocks to Watch
Earnings – A big week for earnings as some tech names start talking about the last quarter of the year. It’ll be interesting to see if the market holds up into this short week.
Rates – With a new administration in place, will inflation finally fall as promised? So far bond investors are taking the bait.
Volatility – The VIX was smashed last week into the long weekend, did it go down to far or will volatility sellers continue to hammer it?
