The Fuse
Equity futures are up strong this morning following some robust earnings reports and milder economic data. Yesterday saw a modest jump in GDP expectations via the Atlanta Fed model, and that could give pause to a rate cut next week and the foreseeable future. However, the market has momentum and liquidity is starting to pick up which means, bears get out of the way!
Interest Rates are moving higher this morning and that could be a thorn in the side of small caps, breadth and other market internals. The futures market now sees a 71% chance of rate cut next week even as rates on the long end of the curve are slowly rising. The yield curve is flattening out, if the job report is strong Friday we could see yields rip higher once again.
The large early push from futures this morning was not helped much overseas. In Europe STOXX were up .1%, the dollar up about .2% while in Hong Kong the marke was flat, Shanghai down .4%.
Japan barely up, gold is slightly lower while crude oil is flat. Let’s just say traders are still sleeping or recovering from last week’s holiday.
Earnings were terrific last night, Salesforce with a tremendous guidance number while Okta kicked it into another gear. We also had strong numbers from Marvell and Pure Storage, which are ripping higher today. Later tonight Synopsis, Ncino, Verint and retailers AEO and Five Below.
New highs for Nasdaq again are important, we are now less than a month before year end with few less days to trade. The last push into the new year could see some pretty heavy money flows amid rebalancing and repositioning. Much of the tax loss selling has happened already and now it is time to find places to park money before the start of 2025. A very encouraging start to the month but we are getting overbought.
Nothing like some followthrough to really confirm your beliefs. No question about it, this bull market is terrorizing any bears and just rushing through to trample them over. With only 19 trading session before the end of 2024 it is highly like a huge meltup is going to occur, and right now it seems everyone wants in on it. We should note however that when the boat gets too full it often tips over.
More poor breadth and we can blame the small caps one more time. As a reminder, it is the small cap stocks that push/pull the market breadth around and cue off interest rates. If rates are coming down we often see the IWM and small caps rally, hence a positive skew towards breadth. What can we conclude today? Nothing so far, but a few more negative sessions would be a bad sign of things to come.
Even though we have had good turnover the last couple of weeks we are seeing a lack of liquidity, and that will lead to some erratic price moves. The more money is flowing the better for the bulls, the liquidity helps to keep trading nice and smooth. However, we are in that period of the year when volume slows down, and of course with a Fed meeting coming up next week there is going to be a wait and see attitude, why jump in now before we see the policy directive.
The Industrials stepped back some Tuesday but may very well roar back to new highs after strong guidance from Salesforce. A bit of sideways for the other indices is going to be constructive, and with the time of year being bullish for sentiment the indices should be gliding with the moving averages. Getting too far over its skis would be dangerous.
The Internals
What’s it mean?
Another lackluster day according to the internals. VOLD and ADD just went flat all session, nothing here to excite the bulls. Put/calls rose up and the VIX went down, but look at those ticks, all red all day long. Something has to give here, because weak internals cannot last for too much longer.
The Dynamite
Economic Data:
- Wednesday:ADP, Fedspeak, ISM services, factory orders, fed beige book
- Thursday:Jobless claims, US trade deficit
- Friday:NFP report, consumer sentiment, consumer credit, Fedspeak
Earnings this week:
- Wednesday:CHWY, FL, DLTR, THOR, CPB, CBRL, HRL, DAKT, AEO, FIVE, SNPS, NCNO, VRNT
- Thursday:DG, TD, CSIQ, SIG, BMO, CAL, KR, CM, LULU, PATH, ULTA, DOCU, GTLB, HPE, IOT, VEEV, ASAN, WOOF
- Friday:GCO
Fed Watch:
Not much fanfare as only a couple of fed speakers this week, Goolsbee and Musalem. Most of the chatter recently has been worry about sticky inflation, the data has been telling us this as well. The next Fed meeting is Dec 10, the last of the year, the market is looking for a cut but may be disappointed.
Stocks to Watch
Sentiment – No question momentum is on the side of the bulls. This is the first week of trading in the most bullish month of the year, and coming off a spectacular November the best bet is on a continuation rally. This week is important to see if that momentum continues or if the market is looking to take a rest.
Retail Stocks – Coming of a very strong first holiday weekend, we may see a pop in some retail names as these companies ready for a big finish towards Christmas. Pay attention to deals and discounting.
Energy – Oil has been going sideways a bit but with a OPEC meeting coming up soon that may change, if the cartel decides to slice production.
