The Fuse
Equity futures are modestly lower as the Fed meeting gets underway later today. Markets are not expecting too much different from the last meeting comments other than more hawkish commentary and a ‘higher for longer’ stance.
Interest Rates are holding steady this morning, the bond market is sanguine about rates at this point. We would say then the bond market is pricing things correctly for now, with the likelihood of one cut and quite possibly two later in the year. The data will determine the path, hot inflation numbers for April (later next month) will not help the cause for lower rates.
European stocks were soft last night, down about .4% while oil is slightly higher and gold is off more than 1.5%. Stocks look to finish the month lower but have certainly cut into those losses over the last week. With a new month often comes new money flows. Sentiment is still fairly positive about the stock market but there are still worries about the long term effect of higher rates. We are nearly nine months since the last rate hike and we can see the effect of that higher bar on the economy.
Earnings last night from semiconductor NXPI were terrific with strong guidance, that stock is up nicely today. Also, Lilly this morning beat and raised full year guidance, as did 3M, those stocks are higher as well. McDonalds with a turn downward, we’ve noticed recently the chart setup was poor, we understand why now.
A pretty volatile day for the markets as stocks started off strong with good breadth, volume and leadership from the small caps. A selling wave hit late in the day following some funding news, that triggered algos to sell and the futures dropped sharply but regained what was lost and nearly closed on the highs of the session. We could probably chalk up the action to end of the month window dressing, but this would be considered a follow-through day.
Good breadth on the session paced by a strong Russell 2K. Given the recent weakness in breadth it was refreshing to see good breadth hold up all session long. Oscillators are now solidly in the green and have made higher highs, new highs are starting to expand like my waistline. All positives for the bulls.
It’s always worrisome if the markets rise on low turnover. This simply means buyers in the market lack conviction to buy, and if there is any whiff of a risk off session these buyers will head to the exits quickly. Basically, the big money is not as involved. That can be problematic but can also be rehabilitated over the next few sessions. We have the last trading day of April today and a new month starts tomorrow, which may bring new money flows.
Closing above 5,100 was a positive for the bulls but we still cannot call this level support. A followthrough day would do it, the Nasdaq is trying in earnest to move above 18K and may do that later today. Is the corrective phase over? It could be, and in that case buyers may come at this market, especially if the news from the Fed/Chair Powell is more sanguine.
The Internals
What’s it mean?
Decent internals on Monday with the VOLD and ADD climbing higher at the end of the day. VIX gave it up as well, but look at those ticks, plenty of green all session long. A new trend is in put/call, which is starting to head lower. We probably need a couple weeks of down in that indicator for a buy signal to occur.
The ticks imply some more upside later this week.
The Dynamite
Economic Data:
- Tuesday:Employment cost index, housing price index, consumer confidence
- Wednesday:ADP, SPX global PMI, ISM, JOLTS, construction spending, FOMC rate decision
- Thursday:challenger job cuts, jobless claims, productivity and labor costs, factory orders
- Friday:NFP report for April, ISM non-manufacturing, SPX global PMI
Earnings this week:
- Tuesday:MMM, KO, GLOW, ETN, LGIH, MLM, PCAR, PYPL, AMZN, CZR, LC, MDLZ, PINS, SWKS, SBUX
- Wednesday:DD, EL, MA, WING, YUM, BZH, CF, CTSH, FSLY, MGM, QRVO, QCOM
- Thursday:CMI, CYBR, IDCC, LIN, PH, UTZ, VMC, AAPL, SQ, NET, DLR, FTNT, HOLX, MSI, OLED
- Friday:FLR, HSY, XPO
Fed Watch:
The third Fed meeting of the year as the committee grapples with higher inflation. That has been the case since the start of the year, a pretty frustrating situation for the committee. We have heard from several members there is no rush to cut rates. We may hear something from Chair Powell Wednesday to this effect. Fed futures are pretty much saying no more than one rate cut in 2024.
Stocks to Watch
Amazon – Earnings are out this week and the mega cap is looking to deliver another home run. The stock is well off the all time highs (10%)but could make a big run if investors appreciate what they deliver.
Federal Reserve – Big meeting again as our eyes/ears will be focused on Wednesday’s statement and the follow-on press conference. The committee is unlikely to move rates at this meeting but the tone may be more hawkish.
Employment – April’s job report is looking to be down from March, but only modestly. It has been the job market that has held the economy together, if it starts to falter the Fed may have to step in with some rate cut discussion.
