The Fuse
Equity futures are lower but well off their worst levels of the morning, when the futures were down by 1.2% or so. The stock market is resilient here and with some tailwind from the Fed there is ample room for the indices to rise up to new all-time highs before year end.
Interest Rates are moving down in a continuation move from Wednesday. The Fed came in and delivered what the market wanted/expected but now it appears they could be on hold for a bit longer. Fed futures are pricing in the next cut more likely in April but that is only about a 60% probability. High yield spreads are tight, the 10 yr yield is moving down as is the 2 year, so the market is trying to make a move here.
Stocks in Europe fell slightly overnight following the fed policy decision, the STOXX off .2%, FTSE was flat, crude oil down about 1%, gold up .5% while silver higher by 2.5% to a new all-time high. The dollar index up .1%, German 10 yr bund yields up 1bp but 10 yr US treasury yields down 2bps, stocks in Asia were mixed, Japan down .9%, Shanghai also down .7% but Hong Kong was flat.
Earnings last night from Oracle were atrocious, a huge miss but the stock had been trending down for weeks. This down move should not be a surprise. Adobe had strong earnings but continues to be plagued by excess supply on the market of its stock. It could be weeks before it starts moving again. This am strong earnings and guidance from Ciena, that stock is up about 10% on the news. Synopsis also with strong earnings. Tonight it’s Broadcom, Costco, RH and Lululemon among others.
Chair Powell and the Fed came in to save the day, and what a day it was. The committee cut 25bps as expected and hinted that more cuts were coming but maybe not for a couple of more meetings. However, the market was very much aligned with that view and really was prepared well for what was to come. Small caps did manage to make a new high, SPX 500 not quite there yet.
Strong breadth all around but the Nasdaq did lack the definitive levels we would have expected on a day like this. Nevertheless, it’s been a weak few days for breadth so yesterday was some nice relief. Oscillators remain in positive ground, now that the Fed decision is behind us volatility may remain low for the rest of the year. Some earnings on tap before year end may move markets but seasonal bullish trends are still strong.
The buyers were piling into the stock market after the Fed made it’s move, a bold one but very expected. No question the market was liking the cut in rates and while it was priced in, many were hesitant to jump in until it was a done deal. That happened the last couple of hours in trading, and we’ll see how the rest of the world responds to lower rates today.
Stocks just did not want to go lower on Wednesday, perhaps traders were lurking and ‘knew’ the upside was the easier trade. But remember, as we spend generous amounts of time away from support with testing it, the harder we will fall when it comes time to test levels./span>
The Internals
What’s it mean?
What a difference a day or the Fed can make! The internals were very impressive, with strong VOLD and ADD, though that indicator fell a bit end of day. No matter, it was a clean sweep for the bulls, with good indicators in the ADSPD, a solid drop in the VIX and the TICKS were green all day, heavy buy programs all day long. As long as there is some followthrough then there is purpose to this day, otherwise the bulls risk a setback.
The Dynamite
Earnings this week:
- Thursday:CIEN, LOVE, MANU, VRA, AVGO, LULU, COST, RH, QX
- Friday:JCI
Economic Data:
- Thursday:jobless claims, trade deficit
- Friday:wholesale inventories, Fed speak
Fed Watch:
The big meeting all have been waiting for is finally here, the last Fed conference of the year. Fed futures are expecting a rate cut on Wednesday and in all likelihood that will happen, but it’s the statement and the press conference that will be even more important. Further, economic projections will be out, the latest views of where policy, gdp, inflation and unemployment will be down the road.
Stocks to Watch
Volatility – The VIX shows high complacency right now, the market is ripe for a rip lower. Volume trends are good, dip buyers may be active again on the next move down.
Oracle – Earnings this week from this mega tech name, many have been watching this one closely after a monster move up in September. The stock has now lost most of that move and momentum seems to be building to the downside.
Retail – Strong retail numbers from a few companies lately has the bulls optimistic about this group. However, few and far between, we’ll hear from lululemon and a few other retail-related names this week to see how the consumer is doing.
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