The Fuse
Equity futures are trickling higher on the back of strong earnings from Cisco and others. Stocks are looking for some upside after being smacked around Wednesday following the hotter than expected CPI. Today’s PPI number is likely to be a market mover as well.
Interest Rates are not moving much this am but to be sure they are trending higher. Wednesday’s hot CPI number is telling the markets inflation is still around and could be on the rise if not under control. The tool of higher funds rate is the preferred weapon of the Fed, and don’t be surprised if they start entertaining a rate hike in the next year or so. Fed futures are pushing out any rate cut expectations to the Fall, but at this point it might take a miracle to get one at all. The likely scenario is no cut in 2025.
Stocks around the world are starting to rally this am, in Europe the STOXX was up .5% as Germany and France were up sharply around 1% each. The dollar fell .2%, crude oil also dropped about a buck while gold was higher by .5%. US Treasury 10 yr yields fell 3bps while German 10 yr bund yields fell 1bp, stocks in Japan were up sharply, 1.3% while China’s markets cooled with slight losses.
Earnings were the story last night on both bull/bear sides. Cisco had a terrific quarter, guided up, raised their dividend and buyback. A stellar report has this stock up 5% this morning. Applovin crushed earnings and is up 30% today, so did RobinHood, that stock up 13% while DutchBros also had strong numbers. Reddit and The Trade Desk were pounded after issuing weak guidance. Tonight we hear from AirBnB, CoinBase, DraftKings, Twilio, Palo Alto Networks and Applied Materials.
That CPI number for January threw the markets for a loop. An extremely hot number in January on headline and core pretty much wipes out any chances of a rate cut in 2025, save for some persistent trending data that points to lower prices down the road. The market is coming to its senses now and figuring out the Fed’s monetary policy is not going to be as stimulative as they wish. That’s fine if earnings remain robust, which they have been. Today’s PPI number might be good enough to push markets higher into the end of the week, as the expectation is now for a hot number. If it is cool, off to the races.
Breadth was atrocious all day as one would expect with a 1% gap down. But volatility did not rise up much so this gap down was likely to be bought, and that is exactly what happened. Though the broader market (SPX 500, IWM) did finish lower there were pockets of strength in the Nasdaq. If that carries over today there could be a big move in store late in the week before the three day weekend.
Turnover was brisk on Wednesday as the selling caused many to cut and run or panic sell. A gap lower will do that to ya, and given the probe down to the 50 day ma on the SPX 500 there was plenty of room for buyers and sellers to be active. Save for the QQQ it was an official distribution day for the indices. Not to panic though, they have been few and far between. A little selling is not anything to worry about unless they start to cluster.
More reaching down to test lower levels yesterday, and maybe they were successful. The gap down following a hot CPI was not expected but certainly understood, markets were moderately overbought coming into the day. We still see good support at the 20 ma, though the 50 ma was tested on the SPX 500 successfully. These brief stops lower are good to see especially if the sellers stop hitting these levels and turn around to buy. Good support means buyers pick up the pieces.
The Internals
What’s it mean?
Quite a bit of action in the internals, a mixed bag. Notice the strength in the Nasdaq TICKS, robust and green most of the day. We also had the ADD finish higher on the day, not bullish but at its best levels. That is encouraging. Put/calls were rising all day, VOLD was weak again while VIX pushed down after an early morning surge.
The Dynamite
Economic Data:
- Thursday:jobless claims, PPI
- Friday:retail sale, industrial production, biz inventories
Earnings this week:
- Thursday:DDOG, CYBR, DE, CROX, DUK, PCG, GEHC, COIN, TWLO, DKNG, AMAT, ABNB, PANW, ROKU, WYNN, RS
- Friday:MRNA, ENR, AMCX, MGA, POR, FTS, SXT, ESNT
Fed Watch:
It’s a big week for the Fed as Chair Powell takes a seat to testify in Congress, the Bi-annual look at the economy. In addition, no less than seven fed speakers will be talking the economy and inflation along with the recent jobs report.
Stocks to Watch
Jay Powell – The first part of his testimony begins on Wednesday in front of Congress. This will be a two-part session (Senate next week). Will he reiterate what was stated at the last meeting?
Inflation numbers – A big week with CPI, PPI and retail sales for January. The first month of the new administration will be some interesting numbers. We don’t expect too much to change yet but the shape of the economy is certainly subject to changes.
Earnings – A huge week of earnings releases that will certainly help move markets. Can the overflow of good news from last week continue on?
