The Fuse
Equity futures are exploding higher this morning following a very strong earnings report from NVIDIA, which also delivered on strong guidance. The opening print may put the indices near all time highs (SPX 500, Nasdaq).
Interest Rates are modestly higher as bond traders turn to a risk on day as equity futures push higher. Fed funds futures are stable and are now in the camp of 4 cuts predicted by the markets in 2024, still higher than the Fed’s expected moves over the next 10 months.
Not much on the news front but we’ll be hearing from several Fed speakers later today, perhaps jawboning about inflation and the economic data. Earnings have been pretty good this season but the guidance has been lagging. Oil is steady and near $77 while gold is slightly higher. Jobless claims dipped this week which is now reflecting a still strong jobs report.
Earnings from NVIDIA were a blowout, the stock gave terrific guidance and pushed through to an all time high. We could see a bit of selling though coming off the name after a few sessions but this was clearly a gamechanger. Most names in the semiconductor space are lifting as well as AI-related names.
Stocks were weighed down yesterday on more worries about monetary policy and perhaps the economy will slow down just enough for the Fed NOT to cut rates, basically leaving policy where it is. That is the likely scenario for the first half of the year, the implication being if the economy slows sharply AND inflation drops the Fed can start reducing the funds rate. That’s a big what if right now after January’s hot inflation number.
Breadth turned positive finally but barely, so we are still skeptical here until the markets turn in a better overall performance. The SPX 500 sported positive day but the oscillators are negative, and if that trend continues we’ll see more downside into an oversold reading. Being down though for the last three sessions has the markets modestly oversold in the short term, so some relief may be due before the end of the week.
Stocks were hit pretty hard early on and into midday but volume trends were not reall confirming the movement. What does that mean? Basically a lack of conviction on the sell side, stops being taken out with little fear of repercussions and a setup for buyers to scorch the bears for a couple of days.
We’ll see how this unfolds into the end of the week, bulls have some momentum following the strong NVDIA earnings.
We continue to see the markets consolidating recent gains. These past few days have been challenging for the bulls but there may be some daylight in the coming days. As we approach the end of the month next week it would be phenomenal for the bulls to finish February above 5K on the SPX 500, it won’t take much effort especially after testing lower levels the prior week. Support at 4,900 currently.
The Internals
What’s it mean?
Perhaps the sellers are finished and dip buyers are ready to take the markets back up. That seems to be a message here, the VOLD and ADD spiked up end of day but so did the put/call, which could be considered a bit worrisome. The VIX nosedived though, less fear now but the VIX remains elevated above 15%. Ticks were pretty red most of the day, we’ll see if that turns around end of week..
The Dynamite
Economic Data:
- Thursday:jobless claims, PMI Flash, existing home sales
- Friday:N/A
Earnings this week:
- Thursday:BLDR, KDP, ALRM, SQ, RKT, OLED
- Friday:BLMN, SSP, WBD
Fed Watch:
FedSpeak the last couple of weeks has been trying to push the market towards more conservatism on monetary policy, but that hasn’t worked out too well. But the data this past week finally shared their sentiment, which is be mindful of excessive inflation, and we will only start cutting rates when inflation starts to fall towards our target. The CPI/PPI clearly tell us that is not happening now. Fed funds futures have backed off a bit and are not seeing 5 rate cuts for 2024 any longer.
Stocks to Watch
Interest Rates – After last week’s very hot inflation readings for January all eyes will be on rates this week. Without much to push rates higher we’ll see if bond buyers come back during this shortened trading week.
NVIDIA – Wednesday is the big day for this semiconductor company, which is now the third most valuable stock in the world. As NVDA goes so goes the rest of the market for the remainder of the month. Will it be sell the news or something different?
VIX – We have seen a slight uprising in volatility the last month or so, just very subtle. It is similar to the move a couple of years prior before a sharp rise up. Was last Tuesday’s moonshot an anomaly or the start of something bigger? The next several days will test out a theory.