The Fuse
Stocks are pushing higher as they look to move towards the highs from last Friday before the major collapse intraday. Yesterday was a day of resilience for the bulls, markets were down nearly 2% at the open but battled back and even went positive for a bit, the industrials and small caps stayed in the green. Some earnings are out today and Friday is an options expiration, VIX is down this morning and may give us clues on direction.
Interest Rates are modestly lower across the curve today as fixed income buyers come in for a bite. Fed funds are steady, the 2 yr yield down near September lows at 3.5%. High yield rebounded this week and is approaching highs again, spreads remain tight.
Stocks rebounded in Europe as the FTSE gained .8% led by massive gains in France, up 2.4%. FTSE was flat, the US dollar index fell .2%. Gold and silver continue their rise and are up more than 1%, crude oil up fractionally. In Asia stocks in Japan rallied hard, up 1.8% while Hong Kong and Shanghai both better than 1% gains on volume. Yields are lower, the 10 YR US treasury yield down 3bps, same for the German 10 yr bund yields.
Earnings this morning from ASML were pretty strong, looking for good numbers also from MS, ABT, SYF, BAC and Dollar Tree.
Stocks managed to claw their way back from an initial massive selloff and actually went green at some point, but then turned lower with more trade war talk. You guessed right if you thought the opening drop was trade/tariff related, this time China was threatening to hurt the US with tariffs. This trade war is becoming ugly but more importantly these unplanned moves are unnerving the markets. Who knows what’s next or the impact, which has everyone now reaching for protection. Comments from Chair Powell reiterated the committee’s current position.
Even though markets were lower on the SPX 500 and Nasdaq breadth was strong, thanks to the small caps. The IWM finished higher by more than 1%, which was a great accomplishment considering the heavy down opener. A broad rally by small caps can spread to other groups of size, but let’s see if there is some followthrough first. Oscillators are split positive and negative again.
strong turnover yesterday across the board, accumulation for the small caps and industrials but distribution for Nasdaq and SPX 500. Of course, that is not the best condition but seeing this bifurcation is a bit alarming. Mechanical trading is alive and well, and money is moving from one area to another, as long as it stays in the stock market.
A test of last Friday’s lows may have been successful today but we won’t know for a few more days. Hopefully the bulls can get it together and push the markets higher and confirm, but that might be for a few more sessions. Earnings season is here and there is no reason to be bearish at this point, but we could see a bit of selling by the start of the new month.
The Internals
What’s it mean?
I’m going to grade this an A for the bulls, the internals were pretty strong but as mentioned, thanks to the small caps. You can see the influence these stocks have on the entire market, good breadth is very healthy for the uptrend to continue. VOLD was higher and finished near highs of the day, same with ADD. ADSPD nearly had a trend up day, while the TICKS were green and dominant. Lots of buy programs. VIX was coming in but closed a bit higher, we’ll see if that continues today.
The Dynamite
Economic Data:
- Wednesday:Empire State, more fedspeak
- Thursday:Retail sales, PPI, philly fed, jobless claims, homebuilder index, lots of fedspeak
- Friday:Housing starts, building permits, industrial production, cap utilization, import prices
Earnings this week:
- Wednesday:ASML, PGR, DLTR, BAC, MS, SYF, CFG, ABT, PLD, UAL, JBHT, SNV, PNFP, BANR, EPAC
- Thursday:TSM, BNY, KEY, INFY, SCHW, TRV, CMC, MTB, MMC, IBKR, CSX, SFNC, FNB, OZK, LBRT
- Friday:ALLY, SLB, STT, AXP, RF, TFC, HBAN, CMA, ALV
Fed Watch:
Lots of fed speakers this week coming out to talk about the economy. This will like be the last big week of fed speakers before the Oct 29th fed meeting, which seems to be one where the committee will cut rates one more time. No doubt some will be talking tariffs again along with the government shutdown, which is likely to be a drag on growth.
Stocks to Watch
Banks – This group has been weaker of late but that is perfect timing in front of earnings. Whenever the financials rally before earnings it usually means downside, we have the opposite situation here.
Tariffs and China – A mid afternoon swoon after President Trump said 100% tariffs on China starting November 1. If this is just rhetoric, a threat or something real we will soon find out after China responds. More uncertainty.
VIX – A huge move in volatility on Friday, perhaps a bit too much but we’ll see how the market responds on Monday. There is nothing wrong with a little fear but if it continues then it could be problematic.
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