The Fuse
Equity futures are getting hammered this morning, giving back a bit of ground from the monster rally that took place on Wednesday. That historic move still stands as simply a bear market rally until further notice. Not many paying attention to the data though as CPI will be released this morning.
Interest Rates poked their head above 4.4% on the 10 yr yesterday and that probably spooked many investors and some politicians in Washington.
As a result, stocks surged following a 90 day pause in tariffs announced midday as yields also fell sharply but right down to support. The 2 year also plunged as well to further complicate matters for the Fed, as those fund futures still portray an aggressive rate cut move later this year.
Following some shattered records on Wall Street stocks in Europe followed suit and rose up 6.9% on heavy turnover, led again by strength in France and Germany. The dollar index fell .2%. Crude oil bounced yesterday but is resuming its decline today, off 2.5%, gold is ripping higher above 3,120. The German 10 yr bund yield rose up sharply, 11bps while US 10 yr treasury yields fell 3 bps, Japan ripped higher by 9.1%, Hong Kong up 2.5% with Shanghai 1.2% higher.
Earnings were sparse last night but we’ll hear from CarMax this morning and some big banks Friday morning.
It started with a tweet by President Trump saying to ‘Be Cool’, and ‘today would be a great day to buy stocks’. That did not spur too much buying, as the VIX was still super high and quite a bit of big movement was still in place. But it was the announcement later of a 90 day pause in some tariffs that really got the juices flowing, buyers just piled in as if there was nothing better in the world. It was an historic day for markets.
Breadth finally showed some positive results end of day, which naturally should have been the case with this amazing rally. VIX collapsed all session long but still remains high. Oscillators, stretched big time earlier in the week rallied hard on Wednesday but are still negative. New lows finally did not expand, so that indicator is pushing towards neutral. Statistics were pretty lopsided to the bullish side.
More heavy turnover, this time to the bullish side after the big rally was induced. An amazing flood of buyers which included short-covering. Historically, rallies do tend to start with short covers, but there was a ton of damage over the past week that won’t be easily recoverable. One day at a time, but with earnings season ready to start and buyer interest picking up there is a chance.
The tinder was primed, all that was needed was someone to strike the match. President Trump did the deed and lit the markets on fire in a similar but opposite way he did a week ago. Strikingly, the SPX 500 is now only 4% below the close from ‘Liberation Day’, a stunning move in just five trading days. Yet, after this monster move higher the index is still below the 20 ma, so if that stalls the rally we are just looking at a 1-2 day bear market rally. More days are needed to see how things unfold.
The Internals
What’s it mean?
WOW! What an amazing day that really got going in the afternoon. A massive squeeze and buy programs flooded the market in a big way, some really amazing action from the point tariffs were put on a 90 day freeze. Looking at the board above is pretty stunning to see, the VOLD and ADD ripped higher, the ADSPD hit 500, I cannot recall that being hit before. TRIN collapsed as did the VIX, falling some 35%, ticks were super heavy green late in the day. Followthrough? We’ll see!.
The Dynamite
Economic Data:
- Thursday:jobless claims, CPI, Chicago Fed Pres speaks
- Friday:PPI, consumer sentiment, NY Fed Pres Williams
Earnings this week:
- Thursday:KMX, BYRN, LOVE, NTIC
- Friday:JPM, BLK, WFC, MS, FAST, BK
Fed Watch:
Stocks to Watch
Volatility – A moonshot of volatility hit last week during the first few days of April. A bit too much? Perhaps, but trying to wade back in is difficult at best, impossible at worst. If the VIX comes down sharply there could be a relief rally.
Tariffs – News of tariffs last week crippled markets here in the US and worldwide. The ramifications are still unknown but most economists believe this is a huge negative for growth. Will there be de-escalation or continued pressure on countries.
Earnings – We’ll have some earnings reports this week, mostly the banks get things underway. With the sharp moves down in this group lately it will take some very soothing words to get investors back in the game.
