The Fuse
Equity futures are mixed again this morning much like they were on Monday before an explosion of buying took place. As we draw closer to Chair Powell’s speech on Friday, which will likely move markets, players are positioning themselves carefully as volume remains thin (showing complacency).
Interest Rates are up slightly again today as bonds give up some recent gains. The 2 year remains steady under 4.1%, implying a big inversion with short term (fed funds) rates. Futures for fed funds are seeing multiple rate cuts in 2024, likely 3 maybe 4 quarter point moves. The Fed is not on board with that aggressive stance.
News that cease fire agreement is imminent in the Middle East prompted some buying later in the day Monday which spilled over to some foreign markets. Euro STOXX were up slightly but Japan ripped higher by 1.8%< Hong Kong and Shanghai were lower. Gold is ripping higher and remains at an all-time high, crude oil is also rallying a bit. The dollar was flat, natural gas lower.
Earnings from Palo Alto Networks last night were terrific as was guidance, while Fabrinet beat and also guided higher. Lowes was out this morning and lowered guidance, missed sales (like Home Depot did) but did beat on the bottom line. Tonight we hear from Toll Brothers, tomorrow Target, Macy’s and TJX.
The big event this week will be the Jackson Hole Conference, hosted by the KC Fed. During this conference we will hear from several Fed Governors and one in particular, Chair Powell. Will he guide us toward a new rate cutting policy which could begin in September? It is very likely and the market seems to be leaning in that direction. Other speakers will be just as important however, with Waller, Bostic and Barr chiming in. One worry here is did the market already anticipate this?
Amazing breadth again as this indicator is now super overbought. Strong breadth and near record highs indicate the stock market will also make a run at all time highs in short order. Oscillators are now pretty well overbought so we could expect to see some pullbacks soon, if not today. New highs crushing new lows again, this indicator is on a buy signal.
Following a big expiration Friday we saw volume recede a bit, however price action was really good. That said, we would like to see the price action followed up with good volume and positive volume trends, that can happen later in the week. As we approach the end of the month there is a good argument for more upside into the Labor Day holiday.
More upside for markets as the support levels get further and further away. That will eventually bring some pain to the bulls. SPX 500 is above resistance at 5,600 and could confirm that level here in a day or so, Nasdaq also very strong with support at 19,400. This index appears ready to run to all-time highs by the end of the month.
The Internals
What’s it mean?
Nothing like bullish fever to put investors in a festive mood. Another very strong day with buyers coming after stocks all session long. That VOLD is still very impressive, you can see it goes back more than a week, the indicator closing on the highs 5/6 days. That is powerful action. Another strong trend day for the ADSPD, TICKS were super strong with buy programs all session long, hardly any red whatsoever. VIX declined again and is now below 15.7 and about to cross under the 200-day moving average. Bullish when it does.
The Dynamite
Economic Data:
- Tuesday:Fed President Bostic, Fed Vice Chair Barr
- Wednesday:Minutes of the July Fed meeting
- Thursday:Jobless claims, SPX flash services/manufacturing existing home sales
- Friday:New home Sales, Chair Powell speech
Earnings this week:
- Tuesday:LOW, MDT, XPNG, TOL, COTY, KEYS
- Wednesday:TGT, TJX, M, DY, ADI, ZM, SNOW, SNPS, URBN, NDSN
- Thursday:BIDU, PTON, BJS, CSIL, CAVA, WDAY, BILL, ROST, INTU, RRGB
- Friday:
Fed Watch:
It’s all about the conference in Jackson Hole. Will they or won’t they and how much for how long? Those four questions may not be answered at once but certainly will be on the minds of traders/investors. Given the closeness of a policy shift and how we are near the next meeting makes sense for Chair Powell and the rest of the committee to lay the groundwork and remove the heavy uncertainty. If so, VIX will be on the move, likely down and markets higher.
Stocks to Watch
Fed Conference – The annual Jackson Hole Conference has often been the place were policy shifts were hinted at. Will Powell use this forum for the same? The market seems to be expecting as much but he is a good poker player, Powell won’t give too much away.
Retail – Last week with strong retail sales numbers for July and solid Walmart sales it was presumed the consumer remains strong. This week a new set of earnings from big but lower tier names will report like LOW, TGT, TJX, ROST and others. Watching their response.
