The Fuse
Equity futures are pushing higher following the first down day of the last eight sessions. The stock market has sights on new all time highs and if Chair Powell delivers on expectations of pivoting to a dovish policy, we may see those new highs challenged by the end of the week.
Interest Rates are unchanged on the long end of the curve, the 10 year yield fell sharply yesterday as did all yields across the board. Fed funds futures are now leaning towards 4 rate cuts in 2024 and another 4 in 2025 to bring the funds rate down to 3.25%. That seems to us a bit aggressive.
With the strength in futures we are dove-tailing Europe which was higher overnight, gold is just about flat as is crude oil. The dollar rose up slightly, higher by .1%. Stocks in Japan were down modestly while China and Hong Kong were both lower. The euro currency has been on the rise of late with the prospect of a better economy.
Very strong earnings from Target this am with a beat and raise. The stock is taking off this morning. Last night solid numbers from Toll Brothers but weakness in Coty. Macy’s reported this am and missed on guidance. Tonight we’ll hear from Snowflake, Synopsis and Zoom.
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?
A down session but also with poor breadth, not unexpected as this indicator was overbought. Oscillators came off their high level to moderate.
New highs continue to expand over new lows. If the rally should continue we would like to see breadth get back on track after a modest move lower.
Volume was lower on the day, stocks were moderately lower. That is what you like to see on a down session, lower turnover. If the market consolidates and rises up we would like to see volume levels expand with better volume trends. That is what we had after the rally started. It’s not surprise when the market slows down after a good run such as last week, but should get back on the rails any day now.
Markets tested some short term support the held firm. We still see 5,550 as pretty good support for the SPX 500. Russell 2K is shining brightly once again, we see 210 as a level that may hold firm. Nasdaq tested some good levels on Tuesday and continues to see 20K as the ultimate upper challenge. Expect to see some market volatility later in the week.
The Internals
What’s it mean?
Bulls took a breather on Tuesday, the internals pretty much tell the story. The VOLD and ADD straight down all session long, ticks were mostly red especially on the NYSE. VIX rose up slightly from an oversold condition. Nothing really bad here other than a consolidation day.
The Dynamite
Economic Data:
- 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:
- 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.
