The Fuse
Equity futures are ripping higher this morning in anticipation of some calming words from Chair Powell. In Jackson Hole for the weekend, the Chairman of the Fed will deliver a speech that many are speculating will be a clear pivot for the committee towards a more dovish monetary policy. The proof is in the pudding however, as this could go either way.
Interest Rates are a bit lower as bond traders are back in there buying aggressively. We have the 10 yr yield down slightly, the 2 year continues to flirt with the 4% level. Fed funds futures now see about 3 1/2 rate cuts in 2024, far more than the Fed is offering (more like 2) but if Chair Powell signals the rate cutting cycle is about to begin, the futures market will be pricing in more cuts and likely sooner. That is eventually a dooming strategy, but we’ll see how things unfold.
Volatility is lower this morning as the much-anticipated speech by Chair Powell is released at 10am EST. Stocks were clawing back losses from Thursday’s sharp down move, Europe gained slightly while Japan was up .4%. Gold is strong this morning, up .7% while crude oil has a nice bid, up more than 1%. The dolloar fell .2% as the German 10 year bund was flat. We have one more week of trading in August which has been a pretty strong month so far.
Earnings from Cava and Ross Stores last night were outstanding along with their guidance. Workday is also higher by 12% after offering very strong forward guidance and a large share buyback. Intuit is down modestly after releasing less than expected earnings.
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 pretty orderly selloff yesterday as buyers were absent the entire session. That’s fine really, volume trends were not strong as the market exhibited some backing n’ filling. That is a normal process, stocks do not go up every single day without a pullback. We did see good relative strength in some groups such as the banks/financials and homebuilders, we’ll see if that carries over.
Breadth was very poor all session as that indicator still remains on a buy signal. That is completely normal and does not destroy the uptrend, rather shaking the trees a bit to see of the low hanging fruit falls to the ground. Volume trends were poor, stocks that fall on low turnover is actually much better than a high volume selloff, which means big institutions were not heading for the exits.
The Nasdaq finished on the dead lows of the day, and that was right on smack on the 50 day moving average. So, what’s the next move? We don’t know yet but we could actually accept a pullback to support before the next move up, seeing as though the market is still in a solid uptrend. The SPX 500 had a poor outside day but that can be rehabilitated quickly with a move back up and over Thursday’s high. That will be a monumental task, but then again volatility did rise up in front of the Powell Jackson Hole speech.
The Internals
What’s it mean?
After seeing so many strong days on the internals like the VOLD and ADD there was room for a pullback. Ticks were mostly red, the mirror image of Wednesday’s action. That’s fine though, but the rise in put/call is concerning along with the spike in VIX. If the market takes Powell’s speech in stride and sees relief coming then the pop in vol is likely to drop quickly, which means markets will rise sharply.
The Dynamite
Economic Data:
- Friday:New home Sales, Chair Powell speech
Earnings this week:
- 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.
