The Fuse
Stocks are getting pounded this morning following news of debt downgrade by ratings agency Fitch. The company cut the pristine AAA debt of the US treasury to AA+. If we remember when Moody’s and S&P downgraded the debt in 2011, there was plenty of volatility as markets were uncertain, but ended up much higher six months later as the uptrend was only slightly interrupted.
Interest Rates are a bit higher as one would expect following a debt downgrade, but with the market in bull mode here the dip buyers are sniffing around.
After the close Fitch cut the US bond rating, as they had been forecasting since back in May. That could send short term ripples across the markets, but we need to see how this plays out. ADP reported the economy created a whopping 324K new jobs in July, a stunningly high number again.
Strong earnings last night from AMD and Match, this morning had solid earnings from HUM but with misses from CVS and Generac. Tonight we hear from Shopify, Paypal,Qualcomm, Unity, Etsy and Oxy.
Nothing big on the events schedule for this week but some pretty important economic data, and earnings from Apple.
Miserable breadth all day long as the sellers took control from the start and never let up. It’s not often we see bearish action on the first trading day of the month, but coming off five straight up months it’s not all that surprising. Still, the trend is up and dip buyers remain active.
Milder turnover this week as we often see traders retreat a bit from the markets during these lazy days of summer.
It is not surprising to see volatility starting to pick up as well, but remain focus on the trend unless it shifts.
Resistance is strong above 4,600 but with the cumulative volume making a new high we should see the markets also make new highs soon enough. Nasdaq has a brick wall at 16K while the Russell 2K is having trouble with 2,000.
The Internals
What’s it mean?
It was down from the start as the buyers exhausted themselves last week and Monday. The VOLD tells the story, red and straight down all session long. Volatility (VIX) was bid all day too, the put/calls remain on buy signals and the TICKS were mostly concentrated in sell programs most of the day. Jobs data may turn this around later in the week.
The Dynamite
Economic Data:
- Wednesday: ADP report, weekly crude report
- Thursday: Productivity and unit labor costs, global services PMI, ISM non-manufacturing, Factory orders
- Friday: non-farm payroll report
Earnings this week:
- Wednesday: BLDR, YOU, CVX, DD, EMR, RACE, YUM, CF, CAKE DASH, EVGO, FSLY MGM, PYPL, QRVO, QCOM, SHOP, ZG
- Thursday: BUD, GOOS, CMI, PZZA, SHAK, VMC, AMZN, AAPL, SQ, NET, POST, DBX, FTNT, WW
- Friday:AMC, CBOE, PRLB
Fed Watch:
Last week’s Fed meeting seemed ho-hum to many but to use there was a message sent, and that was the committee was trying to pivot slowly, out loud. Of course, nobody heard it that way to feel confident about that call, but we believe the Fed may consider a pause or a hike over the next few meetings. Any hike that does come is likely to be the last one. We’ll have some speakers out this week talking about the economy. While inflation remains too high for their liking, they are still very pleased to see prices starting to come down due to their efforts.
Stocks to Watch
Apple – the largest company in the world will report earnings this week, the stock has added more than 1 trillion dollars in value this year. We don’t expect a disappointment but rather news about upcoming products and production concerns.
Jobs – Friday’s big employment report will give us a glimpse of how the economy has started off in the second half of 2023. So far so good and if productivity is strong the day before, the Fed will be very pleased with their hawkish campaign.
Interest Rates – Last week saw rates climb above 4% on the 10 year for a brief moment, enough to scare stock investors. We’ll be watching for more ‘scaring’ this week, if it materializes.