The Fuse
This first day of August has the markets under some pressure before the open. Stocks are down 1% or more as tariffs kick in for countries that did not make deals with the US. Labor market shows a continued decline but does not seem to favor a rate cut just yet.
Interest Rates are lower as the fixed income market is trying to get ahead of the Fed with today’s data. Further, a risk off day here that might push investors away from stocks and into bonds. High yield spreads remain tight but that may change slightly today, fed futures still see 2 cuts coming in the funds rate by year end.
Stocks are falling hard this morning as the new month gets off to a rough start. Tariffs are kicking in as promised by the deadline. The STOXX in Europe fell nearly 1% on heavy turnover led down by bigger losses in France and Germany. The FTSE was also lower by .5%, the dollar flat but gold catching a strong bid up more than 1%. Silver is rebounding from a down session, crude oil is about flat. Rates are rising, German 10 yr bund yields up 3bps with US treasuries up 2bps. Stocks in Asia were lower, Japan off .7% but Hong Kong down a bit more, Shanghai off .4%.
Earnings were a mixed bag last night, Apple delivered strong numbers across the board, Amazon also beat but gave a veiled warning about the rest of the year, that stock is off a bit. Cloudflare and Roku with good beats and raised guidance, while Reddit it one out of the park. This morning strong numbers from XOM and CVX.
Now might be the time to show some concern. Even as Meta and Microsoft rose up smartly with strong earnings beats the rest of the market weighed heavily down. A nasty reversal from the highs to the lows, nearly 100 handles wide tells us buying interest is just not there. Maybe at some point in the next few days but certainly with news coming this week of earnings, Fed and jobs there was a reason for the bulls to pause.
We have been talking and warning about the poor breadth and now we have a sell signal in place. Does that kill the market rally? No, not really but it is certainly a negative sign and likely puts the bears in control short term. Oscillators went even lower today and are approaching oversold conditions, which means this modest correction may only have a short time left.
Heavy buying in the am trapped some bulls and made them wrestle with new positions. The buying was concentrated on tech but small caps were really hit hard all day, and eventually weakness was felt in the industrials. Another distribution day here as volume continues to accelerate with the indices falling. It’s time to play it cautiously.
The indices continue to press lower to test support levels. Eventually that is a good thing, but we cannot expect some sort of ‘controlled’ sell off to occur. There is often chaos, panic, fear and deeper moves down. The IWM continues to probe lower while the SPX 500 and Nasdaq are marching right to the 20 ma. The sooner the better.
The Internals
What’s it mean?
If we look at the VOLD it shows us weakness everyday. this is the volume adjusted up/down indicator, no wonder we have a cluster of distribution day. This is clearly bearish, and the ADD is showing the same weakness. Put/calls remain elevated, VIX is starting to get ‘jiggy’, too. TICKS were mostly red all day, a sign of sell programs hitting hard.
The Dynamite
Economic Data:
- Friday:NFP for July, ISM, consumer sentiment, construction spending
Earnings this week:
- Friday:XOM, CVX, REGN, LYB, TROW, FLR, D,CL
Fed Watch:
This might be the week where the committee finally gets off holding rates steady. Inflation has been coming down consistently and apparently some on the Fed believe it is time to cut interest rates. That may be true now but perhaps only a slow drag down on short term rates is in order. We’ll be listening to Chair Powell closely for any clues but the market does not expect a cut at the meeting this week.
Stocks to Watch
Apple – For all of the investor’s worries Apple is in the sweet spot of the calendar. The company does not sell too many products from April through August but really starts to ramp up sales before the holidays, especially if there is a new slate of products. The stock has been trying to make a bullish run lately and maybe this week’s earnings will provide the lift.
Meta – Probably the most exciting name out there next to NVIDIA, the big advertising/social platform is looking for back to back winners. In April the company crushed estimates, this time around the stock is priced for it as they may increase their spending. Meta might get a pass from it this time around.
Jobs Report – Economists for the last three months have failed to predict when the weakening job market would arrive. They are trying for it again, eventually they will be right but how soon is the question.
