The Fuse
Equity futures are soft this morning as volatility is starting to creep up as we enter the ‘NVIDIA earnings window’. We often see a spike in volatility in front of big earnings reports and this time there is none bigger. Expectations are high yet again. We look for a turnaround Tuesday for the SPX 500 and Nasdaq to kick in.
Interest Rates are climbing this morning as the 10 year yield may have hit bottom last week. A move to 4% does make some sense as bondholders take some profits before the long holiday weekend. 2 year yields broke 4% Monday but that may be reversed today. Fed futures are still aggressively pricing in 3 1/2 rate cuts into to the end of 2024, far more than the Fed is willing to commit to.
Stocks are starting the day on the defensive as a division of size and price was dominant on Monday. Small caps and the Industrials were in the lead while the tech-heavy Nasdaq and SPX 500 were drowning in a sea of red. Europe opened last night after a holiday and gained about .3%, crude oil and gold are backing away from recent gains. Stocks in Asia were mixed, Japan and Hong Kong up modestly while Shanghai declined by .2%.
Earnings wer light yesterday and this morning, save for a few small Chinese names and small US companies. Tonight we’ll hear from Box, Nordstrom, Ambarella, Semtech, PVH while tomorrow am we get some retailers like ANF, Chewy, Kohls, Foot Locker, Bath and Body Works and Smucker.
Stocks started off strong but faded early and never recovered those losses. The small caps were showing good initial strength but the sellers came out and did some damage. Another bifurcated market with weakness in Nasdaq and SPX 500 but higher closes in the Industrials and Russell 2K. The Industrials traded at a new all time high Monday.
Positive breadth but that is the only good thing to say about the action. We went from a 2-1 positive to barely green, but it counts even as the commitment from Friday seemed shallow. Oscillators, which were pretty overbought on Friday backed off slightly. New highs still crushing new lows, that indicator remains on a buy signal.
We should certainly not expect strong volume trends to exert themselves this week. We are at a time where traders on the desk are assigned to ‘do no harm’, meaning don’t mess anything up when the A traders return after Labor Day. Choppy markets are tough to navigated but it is what it is. Perhaps a bit better turnover late in the week as we approach the holiday weekend and less volatility to boot.
Stocks failed to test good support levels even as the Nasdaq fell by more than 1%. However, the index did fall right on the 50 day moving average, but better support is just under 19K. That test might really scare investors and traders, and with stepped up volatility early in the week maybe things are shaken up. This shows how much the markets were overbought coming into the week. While a 1% drop may seem harmful (Nasdaq) it really is not much, there are strong support levels down to .
The Internals
What’s it mean?
A yawner of a day but singed with some bearish qualities. Ticks were pretty red all day, lots of sell programs especially on the Nasdaq. Seems the price moves up Friday were too much, the market got ahead of itself. That happens often in the short term as we know, markets pull back and move forward, you can’t go up everyday! Put/calls rose up though and the VOLD/ADD were at zero. Just a nothing burger today, though slightly bearish.
The Dynamite
Economic Data:
- Tuesday:Case/Shiller home price index, consumer confidence
- Wednesday:Atlanta Fed President Bostic
- Thursday:Jobless Claims, retail/wholesale inventories, pending home sales
- Friday:PCE, income/spending, consumer sentiment
Earnings this week:
- Tuesday:BMO, S, PVH, BOX, AMBA, JWN, YY
- Wednesday:ANF, CHWY, KSS, FL, BBWI, NVDA, CRWD, CRM, AFRM, OKTA, VEEV, HP, FIVE, NTAP
- Thursday:BBY, DG, AEO, OLLI, CPB, BURL, BIRK, FLWS, DELL, LULU, ULTA, MRVL, GPS, ADSK, MDB
- Friday:JKS
Fed Watch:
Last week’s speech by Chair Powell on the view of monetary policy was just what the doctor ordered. It is not too often the markets guess exactly right what the Fed is going to say or do, but it happened last week. A strong surge higher with Chair Powell pouring gasoline on the fire. That’s nice, until things get too giddy. Two Fed speakers scheduled this week (Daly, Bostic) so we may hear more about policy before next month’s meeting.
Stocks to Watch
NVIDIA – The big chip maker will report earnings Wednesday after the close, and no doubt they will hit the ball out of the park once again. Expectations grow each earnings report as the bar is raised, but the company continues to see more money flow into the stock. A huge report for tech.
Volatility – We have seen a huge run down in volatility the past few weeks, and given we are in front of a three-day holiday we may see the VIX tumble even more. Below the 200 day moving average would be a bullish situation for the markets.
PCE – End of week we’ll get the Fed’s preferred inflation gauge, the personal consumption expenditures. This indicator has been trending down slowly, if that continues it bolsters the Fed’s stance to cut rates sooner rather than later.
