The Fuse
Equity futures are rallying again trying to followthrough on yesterday’s robust move. The Dow Industrials traded and closed above 37K for the first time, this index is strong but so is the Russell 2K, which had a sharp move up by nearly 4% on the session. Both of these indices are now up double digits for 2023, representing broad strength across many sectors. It’s not just about the FANG+ names anymore, rather some good values are seen in other sectors.
Interest Rates are down this morning again but the real move was yesterday following the a more dovish statement by the Fed. The 10 year yield dropped sharply and is near penetrating 4%. Gold rose up smartly yesterday and is pushing higher today, crude oil back up over $70 per barrel.
The big news was of course the Fed meeting and the pivot from the Fed following the committee’s last meeting of 2023. The market is now looking at rate cuts, according to the projections some fed officials see several rate cuts coming into 2025 (as many as seven). Financial conditions have loosened markedly over the last few months which has spurred more capital flow into equity markets.
Earnings from Adobe Systems were solid but not as robust as many on Wall Street were expecting. The stock is down sharply in the pre-market but may be a good buying chance today and down the road. Later tonight we’ll hear from Lennar and Costco.
A sensational rally fueled by a bold statement from the Fed that seemed to indicate rate hikes are over and rate cuts will be on their way. Not too fast though, said Chair Powell in the press conference but he did say that was a discussion today in the room. The Dow Industrials hit an all time high today as did the SPY and QQQ (trading ETF’s). It’s been a remarkable fourth quarter and with 10 trading sessions left in 2023 clearly the bulls are in control.
Breadth was very poor up until the Fed announcement then right after the buyers just blew the doors off the building. The internals went vertical, breadth finished super strong with that indicator clearly on a buy signal. With an 8-1 rout of the bears there could be more upside, gobs of breadth are very bullish.
Accumulation day all around for the indices as most of the buying came in after the Fed announcement. It was as if a match was lit to some paper that just caught on a whiff and then ran crazy. While the volume was large it only really came in during the last couple of hours, imagine a full trading session!
Markets have pushed away from the edge and are making a run to all time highs. With seasonal trends, momentum and liquidity all in the bulls’ favor, it’s going to hard to see the markets fail before year end. The all time high in SPX 500 is about 110 points away, or less than 2.5%. A layup.
What’s it mean?
Stunning. What a move after the fed meeting, you can see the reversal up in VOLD, ADD and ADSPD. These are powerful reversals in one session, more importantly there is probably some followthrough this week. The incredible turn was spurred on by the Fed statement, as buyers piled in. The VIX barely budged but that did not matter much. Ticks were strong in the afternoon as buy programs continued to hit the tape. No mercy on the bears.
The Dynamite
Economic Data:
- Thursday: Jobless claims, retail sales, biz inventories, import/ex prices
- Friday: Empire Manufacturing Index, IP and cap utilization, S&P Global PMI
Earnings this week:
- Thursday: COST, LEN, REGN
- Friday: DRI
Fed Watch:
It’s the last Federal Reserve meeting of the year and markets are not expecting rates to move at all. We will have some projection materials this week from the committee along with another press conference from Chair Powell. In all likelihood the committee will be far more reserved than what the market wants, and that could be considered a disappointment. Look for quite a bit of volatility before and after the meeting.
Stocks to Watch
Federal Reserve – This is the last meeting of 2023 and the hope is the committee is more likely to end rate hikes in 2024. No hike or cut is expected this week.
Interest Rates – They say the bond market has been doing the Fed’s job. Yet, the market is now pricing in five 1/4 point rate cuts in 2024. They may be way ahead of themselves and the Chairman may throw some cold water their way.
Retailers – We are only a couple of weeks from the Christmas holiday and shoppers remain active. But as the time gets near supplies run short and stock (inventory) is hard to come by. So far it seems to be a solid shopping season.