The Fuse
Equity futures are getting belted again this morning, removing the gains from Tuesday. On tariff day it is hard to see markets taking this in stride, but maybe news is already priced in. The markets remain in a downtrend though they are trying to make a stand at 5,500 on the SPX 500. That may not hold.
Interest Rates are down slightly this morning with news of tariffs on the way later in the day. ADP will drop this morning, which will be an interesting number given the talked slowdown in the labor market. Fed futures are still ticking higher, seeing more cuts than the Fed is probably willing to do.
Stocks are down early Wednesday on ‘liberation day’, the time when tariffs are initiated around the world, unleashed against many countries. The theory is to bring in more revenue, but this will inevitably be inflationary, but we’ll have to see. In Europe stocks were down, the STOXX off .5%, led down by France and Germany.
The dollar was flat but gold an silver rose up again. Crude is down about .5%, German 10 yr bund yields were down 2bps, 10 yr US treasury yields held firm. Stocks in Asia were mixed, Japan up .3% but Hong Kong and Shanghai were mostly flat.
Earnings are sparse again this week but we’ll get a brief preview of business from the first quarter. We’ll hear from PVH, NCNO, RH, Guess, Blackberry, Acuity Brands and some smaller companies. Big banks will be out next week.
Another weak start to the day but a modest rally puts the indices in the green. That is two straight wins for the bulls but they did it the hard way. Regardless, the indices looked ready to falter but some buyers stepped in to save the day. No question the trend remains down but the markets are simply trying to carve out a bottom. It is often a messy process, like making sausage. We’ll see how it unfolds when some big news hits the tape this week.
From the opening print breadth was rancid but did manage to improve during the day. It was difficult to see how buyers would step in but it is the start of a new month and money flows are often sharp. Still, news about tariffs today may cause some consternation. Given the news of weaker economic data and perhaps a poor job number Friday there is reason to believe markets could be in for a wild ride.
Good volume as the two way action was good enough to get both sides involved. That is how you get higher volume prints, with heavy volatility. Panic on the sell side, opportunistic trading on the buy side. We are likely to see big volume prints later in the week, the VIX is high and could be sold down some if news is taken in stride.
More probing of lower levels, and the SPX 500 did print a higher low, higher high on the day. That is a good start of the bullish case, but we would like to see followthrough and more upside, at least to the 20 day moving average at 5670. There is stiff resistance at 5,800 so if markets do draft higher there is a target area.
The Internals
What’s it mean?
Starting the day weak and finishing strong is actually a bullish quality. There is an element of ‘bottoming’ here but we’ll wait to see if it holds in. VOLD finished on its highs of the day as did ADD, put/calls did rise and the VIX started up but finished lower. Ticks shows buy and sell programs all day long. That is likely to be the case the remainder of the week.
The Dynamite
Economic Data:
- Wednesday:ADP, factory orders, Fed Governor Kugler
- Thursday:Jobless claims, trade deficit, services PMI, ISM, two fed speakers
- Friday:non farm payroll, Chair Powell, Govs Barr and Waller
Earnings this week:
- Wednesday:BB, ANGO, CGNT, RH, PENG, BSET, CLIR, FC, RGP
- Thursday:CAG, GES, SLP, AYI, LNN, KNXT, LW, MSM
- Friday:N/A
Fed Watch:
After last week’s rather hot inflation number we have quite a few fed speakers coming out with speeches this week, including Chair Powell on Friday. That will be following the jobs report, which is going to be another pivotal data piece. Jobs have been strong for a few years but if they start to show cracks there may be action needed by the Fed down the road, but not right away. Inflation in the interim remains a problem and may only get worse with tariffs.
Stocks to Watch
Volatility – We again watch the VIX as it is now above all of the futures contracts. That condition does not often last for too long before easing up, but the uncertainty abound is making investors quite worried and nervous.
End of Quarter – Monday is the last trading day of the first quarter and it has been awful. The worst performance for the SPX 500 in about three years, stocks are reeling just before the start of earnings season. It is foolish to be bearish before earnings begin but hard at this time to be bullish, too.
Gold – Hitting a new all-time high this week was impressive, what is the message from the metal? Certainly there is something there, other commodities have shown good strength as well including copper, which hit all-time highs last week before the tariffs start to hit.
