The Fuse
Equity futures are heating up on this last trading day of August. It’s been a wild week with some jagged action but hopefully the trading smooths out next week following the three day holiday. Industrials are trying to finish the week in record territory.
Interest Rates are moving slightly lower this morning as traders await the July PCE data. This is one of the favorite metrics for the Fed and could help determine how they craft policy. Fed funds futures have not shifted much recently, still bent on four rate cuts before the end of 2024.
Strong move in futures driven by strength in the overseas markets last night. Europe was higher by .2%, Japan and Shanghai with the same solid .7% while Hong Kong was up a robust 1.4%. Gold is sliding a bit off its recent highs and crude is settling down towards $75 per barrel. The dollar index is lower again, the green back has been sliding lower of late.
Earnings from Dell and Marvell last night were very strong as they also provided terrific guidance. Autodesk also beat and guided up while Ulta is getting smashed for a big miss and reduced guidance. MongoDB also with a strong beat and guidance, that stock is up 15% this morning.
The aftermath from NVIDIA earnings spread far and wide. Chip stocks were hit somewhat hard but not as much as feared and certainly not as much as NVIDIA was hammered. During this last week of August caution is always warranted, there was plenty of volatile action all session long that wreaked havoc on the price action. Still, new highs are within reach, about 1% away for the SPX 500 and 4% for the small cap Russell 2K.
Breadth was pretty strong even with a separated market on Thursday. That good breadth turned the oscillators upward for a change, that has not happened in about a week. New highs continue to expand with groups like energy, utilities, staples, discretionary, retail and some tech leading the way. Broad leadership will help this really continue to be sustained.
When an index hits a new high on better volume it is something to consider. That happened with the Industrials yesterday, closing at a new high with strong turnover. Does it mean this will carry forward? Down the road yes, in the short term probably not. Price discovery happens all the time and if there are no buyers present at higher levels the market will come down to find them. But, new highs are great to see with better turnover.
This has been testing week, with the indices probing lower levels to find buyers. That is a normal activity in times when trading is weaker such as now. For instance, the Russell 2K has been probing lower and finding buyers at the $210 area, so pullbacks to that support area offer good opportunity and value. There are good spots like this in the Nasdaq too, the 19,200 area is one important spot.
The Internals
What’s it mean?
Some improvement yesterday in those internals, the VOLD climbed back up for the first time all week, ADD finished strong but the best part of the day were the ticks, which ended green and with some strength. Buy programs are signaled by green ticks, they were happening. VIX gapped lower and moved down most of the day but finished well off its lows. As we head into a holiday weekend we could see that volatility sold hard, especially following the release of the PCE data this morning.
The Dynamite
Economic Data:
- Friday:PCE, income/spending, consumer sentiment
Earnings this week:
- 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.
