The Fuse
Equity futures are bouncing back sharply this morning trying to regain some composure after a monster selloff Friday. Recapturing about half of those losses is a good start but there is further to go, and this week could be quite volatile. VIX futures for December will expire this week.
Interest Rates are rising a bit after falling down on Friday. We continue to see rates across the curve remain steady but are awaiting some news (like the NFP for November) before reacting. High yield spreads are still very tight as this group offers a very attractive return if the economy remains strong. Longer term yields like the 10 and 30 year treasury are sticky and don’t seem to be coming down, reflecting the angst over inflation. Fed futures pricing in the next cut in April but a chance for March.
Stocks in Europe gained some ground, the STOXX higher by .3% led by gains in France and Germany. The FTSE was also up by .4%, the dollar lost .1% but gold and silver are rising up. Crude oil down just under 1%. Yields in Germany and the US 10 yr treasury were down 1bp, in Asia stocks were lower, Japan off by 1.3%, Hong Kong down in volatile trade also 1.3% and Shanghai down .6%.
Earnings are thin this week but some big names report. We’ll hear from Nike, FedEx, Accenture, Darden, Micron, Jabil and Carnival. These may move markets.
Friday’s large loss could be a one-off if the bulls get back on track. No question the action was driven down largely due to the crypto and AI crowd, Nasdaq took a great deal of punishment but is still standing tall. Small caps are now more interesting to watch, if they bounce back here that could lead to a nice, broad rally to the upside for the other indices.
Horrendous breadth on Friday as one might expect with the markets down 1% or more. The Nasdaq took the brunt of the punishment but so did small caps, they fell about 1.5% on higher volume. New highs are still ahead of new lows and the oscillator is still showing both NYSE and Nasdaq in the positive. We may have a couple more down sessions to go here to test levels and then a rally may ensue.
Volume was heavy on Friday with the bears out in force. With the news out of a rate cut following a big rise Wednesday it was time to take some profits, and the poor news from Oracle and Broadcom brought out the sellers in a big way. No doubt next week’s expiration had an influence this week, we often see traders ‘get set’ for an expiration like December, which will bring heavy turnover with it.
Today would be considered a critical day to look at support levels if the bears conquer the session. Why is that? Well, we have an overbought condition in small caps and the Industrials still, and a pullback to the 20 ma seems to be a lock if the markets are down today. SPX 500 is also in need of a pullback, Nasdaq is the worst of them all and is testing the 50 ma, it may fail there if other indices don’t pick up the pace.
The Internals
What’s it mean?
A rotten day for markets and also the internals, a complete flip from midweek. VOLD was just smashed as was the ADD, the ADSPD not hurt as badly. TICKS were heavy red all session long, lots of sell programs hit during the day. VIX did not rise up too much and that is a concern, it is still showing high complacency.
The Dynamite
Economic Data:
- Monday:Empire State manufacturing, home builder confidence, fed speak
- Tuesday:Nov NFP, wages, retail sales, flash PMI, biz inventories
- Wednesday:Fedspeak
- Thursday:Jobless claims, CPI, Philly fed index
- Friday:Existing home sales, consumer sentiment
Earnings this week:
- Monday:ABVX, NAVN
- Tuesday:DLTH, OGI, LEN, WOR
- Wednesday:JBL, GIS, ABM, TTC, VERU, SPIR, NMTC, MU, WS, EPAC, MLKN
- Thursday:ACN, FDS, DRI, KMX, CTAS, FCEL, BIRK, ISSC, NKE, FDX, KBH, BB, AVO, SCHL, HEI
- Friday:CCL, CAG, LW, PAYX, WGO
Fed Watch:
Well the Fed did their thing last week and cut rates one more time, bringing the funds rate to 3.5%. That is still a bit restrictive policy but Chair Powell indicated that may be the last cut for awhile. The projections indicate one cut in 26 and one in 27, which may be pulled up. so that means a 3% rate by beginning of 2027, which may be the right policy figure. Lots of fedspeak this week before the holiday takes hold.
Stocks to Watch
AI – Much angst at the end of the week over some worries on the growth path of AI. Too much spending? Too much capacity? Even the dot.com days of 2000 when overbuilding happened seems to weigh on everyone’s minds. Expect some resolution soon.
Financials – Banks had a strong week as rates were lowered, this will help businesses grow and along with it bank loans. JPM was beaten down but came back in a huge way end of week. Looking for some continuation into the end of the year.
Volatility – The VIX is curiously low here with quite a bit of uncertainty, but perhaps it will just stay low until year end. We often see that happen but with recent saber rattling about rates, employment and inflation we could see more traders taking protection.
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