The Fuse
Equity futures are down in pre-market this morning as some of the overbought conditions start to permeate. Yesterday’s terrifica rally across the board means any pullback is likely to be shallow and short, but frankly the markets are in need of a rest. So far in December the SPX 500 has only been down three sessions and up nine, a huge differential. There are only seven trading days left in 2023.
Interest Rates are lower on the long end of the curve as bond buyers continue to sneak in and pick up some fixed income. It’s been a great month for bonds and bondholders especially since last week’s Fed policy meeting. We are seeing however the curve inverted sharply once again, which this time may force the Fed to act sooner. Bonds across the globe are rallying this month.
Crude oil continues to climb, nearly $75 per barrel while gold and silver are modestly lower. Stocks in Europe were little changed overnight, the dollar up slightly while bitcoin rose up .7%. Germany’s 10 year bund declined to be under 2% for the first time in awhile. Later this week the PCE will be released and that might move markets (favored inflation gauge of the Fed) and some sentiment data as well.
Earnings from FedEx were a bust last night, the stock is getting drilled today after failing to meet revenue guidance. This is an important company for the economy yet with the holidays here and lower energy prices it is hard to believe FDX cannot seem to execute. The markets are going to punish this stock today. General Mills this morning out with earnings and cut their annual sales forecast on slowing demand.
It was recently the Dow Industrials but now the Nasdaq has joined that index with a new all time closing high. It has been nearly two years but the Nasdaq 100 has shown tremendous strength and leadership since the start of this year. Even if it was only a handful of stocks leading the way early, the constant chatter of the Nasdaq, Magnificent Seven or any other group rising in the face of higher rates was very impressive.
Tremendous breadth on the day with a rout of the bears, more than 4-1 to the positive side. As Tom McClellan likes to say, ‘gobs of breadth are very bullish’. Indeed. As we look to close out 2023 on a bullish note, we may see more days like this coming up as those who are feeling FOMO (fear of missing out) tend to arrive at the party very late.
Good volume in the IWM and DIA put these two indices at an accumulation day, the SPY and QQQ were strong but volume was weaker than Monday. Not to fear, the big volume from Friday is still acting as a hangover. The year end finish promises to bring some heavy turnover, and with markets at/near all time highs there is a chase to the finish.
With the Nasdaq finishing at a new all-time high the next one to step up to the plate is the SPX 500. That index is less than one percent away from an all time high and frankly we could see that tagged by the end of this week. As mentioned yesterday that would be a ‘sell the news’ event should it happen.
The Internals
What’s it mean?
Rock solid internals yesterday with very strong VOLD and ADD, while the put/call ratio declined and the TRIN was also drained. But look at the TICKS here, both NYSE and Nasdaq. The bulls just crushed it with heavy buy programs all session long. Strong breadth and volume often means more upside to come.
The Dynamite
Economic Data:
- Wednesday: Existing Home Sales, Mortgage apps, Crude Oil Inventories
- Thursday: Jobless claims, GDP 3rd Q Estimate, Philly Fed, Leading Indicators
- Friday: PCE, Durable Goods, Michigan Sentiment, New Home Sales
Earnings this week:
- Wednesday: GIS, WGO, BB, MU, LYV
- Thursday: NKE, KMX, CTAS, PAYX, AVO, AAR, CCL
- Friday: N/A
Fed Watch:
Some Fed talk on Friday caused many to take money off the table but the Chairman’s words Wednesday were pretty definitive. The committee kept rates in check and stated there was ‘talk’ of a time line for rate cuts. That spurred a slew of buying in stocks and yields fell sharply, the 10 year is now below 4% for the first time since August and its lowest levels since July. Truly amazing move lower but we may be at the far end of the move now. The inversion of the curve is extreme.
Stocks to Watch
Volatility – The VIX remains low, hovering near 12% and could even break LOWER this week by Friday (holiday coming up, volatility sellers are active).
Small Caps – The Russell 2K has been on fire lately, with yields falling sharply that means small cap names are getting heavy money flows. If rates don’t rise then the Russell 2K may finish the year strong.
Retail Sales – Last week’s report was pretty good but this is the last full week for shoppers to get ahead of Santa. Can the consumer pull it off once more?