The Fuse
Equity futures are down modestly as traders try to follow through on Friday’s monster gains. We’ll give a couple of days for that follow through but until then the direction is not yet clear. A fed meeting this week might actually clear some things up in the short term and perhaps a pullup from deep oversold conditions in March could also be seen.
Interest Rates are down as we see a small rally in bonds. The fixed income markets are preparing for a rate meeting decision on Wednesday, largely thought to keep policy where it is at. Fed futures are very aggressive though, seeing more than 3 rate cuts in 2025. We just don’t see that happening unless inflation starts to fall materially.
News. Stocks in Europe are up modestly today as France and Germany were quiet. The dollar was also flat, crude oil is up strong, about 1.5% while gold is surging again, above 3K per ounce. Silver is also rising. German 10 yr bund yields fell 2bps, US 10 yr treasury yields dipped 1bp, in Asia stocks were higher, in Japan up .9%, Hong Kong up .8% and Shanghai up a small amount, .2%.
Earnings are sparse this week, save for a few important companies. Micron, Nike, FedEx, Accenture, Jabil and PDD will report this week. Recent earnings have not been strong but if there is a strong bid in the market it won’t matter if these companies miss expectations.
It is all about the Fed this week with a big meeting, press conference and new economic projections. The committee is likely to pass again on changing policy but the posturing is going to be discussed at the table. Is growth slowing enough to cut rates? Is the job market going to remain buoyant? How about sticky inflation, but then last week’s CPI/PPI were price friendly? We’ll have these and other question cleared up (hopefully) by late Wednesday.
Breadth finally turned for the bulls this week, and it was on the last trading day! A lopsided number as well, better than 90% upside volume with widespread participation. New lows are still ahead of new highs but the difference shrank on Friday. Oscillators are not very oversold any longer but are still negative. We should be uber cautious here as any surprising news can hit the markets hard and very quickly.
Volume was disappointing which makes us a little leery of this big move Friday. Certainly with some followthrough and then a higher high on the indices we would feel a bit more comfortable about equities. With some news this week and potential movement from the Fed’s projections we’ll have to see how much of this oversold rally continues. Turnover has been trending bearish of late.
5,500 was tagged on Thursday and could be the low of this cycle IF there is some good followthrough. Of course, we may need to see a pullback to test that level, see if it holds. Russell 2K (IWM) broke 200 and remains in a bear market but it did have a strong day Friday, rising up more than 2% on good turnover. Just a pullup from oversold conditions but it there is followthrough we have some upside targets in our sights.
The Internals
What’s it mean?
That was some day for the markets. Strong internals all session long, the bulls would not let up on the gas. So, this is ONE day which does not make a trend. Can we get another one today? We’ll see, but the internals were solid on Friday with good strength in VOLD and ADD, the ADSPD on a trend up day. Ticks were super strong all day with plenty of buy programs. The VIX came down hard as well and closed in the low 20’s.
The Dynamite
Economic Data:
- Monday:Retail Sales, Empire State Manufacturing, Biz Inventories, Home Builder confidence
- Tuesday:FOMC meeting begins, housing starts, building permits, Import prices, Industrial production/cap utilization
- Wednesday:FOMC decision, Powell Press Conference
- Thursday:Jobless Claims, Philly Fed, leading economic indicators, existing home sales
- Friday:N/A
Earnings this week:
- Monday:FGEN, LPRO, LAR, RBOT
- Tuesday:XPEV, HUYA, ESLT, ETON, STNE, HQY, ZTO
- Wednesday:SIG, WSM, GIS, OLLI, HCM, JILL, FIVE, FV, YY
- Thursday:PDD, JBL, ASO, ACN, GAMD, DRI, LE, MU, NKE, FDX, PL, LEN LAZR, KLC
- Friday:NIO, CCL
Fed Watch:
The second Fed meeting of 2025 may be a contentious one. Recent readings on inflation (last week) seem to point towards the downward move in prices the committee was hoping for. Yet, we are a long way from feeling comfortable about the trend of inflation. There have been fakeouts along the way, the committee is taking a much more guarded approach to crafting the right policy moves, as they should. Projections come out this week along with a Powell press conference.
Stocks to Watch
VIX = Volatility got a big jolt last week, rising up near 30% before backing off by week’s end. The trend may be down with another drop below 20% but there are still worries about tariffs and the uncertainty about economic growth.
Interest Rates – We have seen rates ticking higher ever so slowly over the past several weeks. This seems to imply a distaste for bonds at the moment, tied into weakness in the dollar, strong gold as well and worries over the US economy. Some of those uncertainties will be understood better this week.
Options – Expiration is this Friday and it is a big one, the triple witching variety. As is custom, rollouts happen about week prior so the effect from expiration is only really felt on volume unless there is a big gamma skew. It’s more or less a media spectacle.
