The Fuse
Equity futures are starting off weaker this morning following a strong finish and new all time highs in three indices. Another big week of earnings as a large chunk of SPX 500 names will report. After last week’s mixed reports it is likely we will see the same. Many stocks have strong bullish charts and that may carry some names higher.
Interest Rates are back up this morning as bond sellers are out with a bit of risk off approach to fixed income. The yield on the 2 year was up to 4.44%while the 10 yr up sharply to 4.08%. Friday’s big rise in yield followed the very strong jobs report that seemed to push off rate cut expectations by the futures market.
Attacks by the US in the Middle East are largely being ignored, oil prices are actually lower which is a surprise but so is gold, down about .5%. We often see these two commodities rising in times of turmoil and conflict. Fed Chair Powell was interviewed last night on 60 Minutes and reiterated the committee’s position that inflation remains a troubling issue and rate cuts, while likely won’t come until later in 2024. European stocks were up overnight, stocks in Asia were mixed.
Earnings out this morning from Caterpillar and McDonalds were pretty strong, though the latter only produced in-line earnings. Estee Lauder also beat estimates and delivered news of layoffs and a plan to return to profitability. Later tonight we’ll hear from NXPI, Palantir, Vertex and Simon Property, while tomorrow am brings us Lilly, Spotify, Toyota, BP and Fiserv.
Pretty strong move for the markets on Friday though they did not close on the highs of the session. However, after a strong dip midweek the indices have ‘righted’ the ship again and look to make a run higher early in the month. Stocks are not overbought here save for a few names, so that might be a chance for the rest of the market to play catchup.
Breadth was really poor to start the day as the Russell 2K was down more than 1.5% at one one point. Remember, breadth is based in issues up and down, the small caps have the bigger numbers in terms of size and not dollars. The oscillators turned even lower with the negative breadth as this indicator is just clinging to a buy signal.
Volume in the big cap indices (SPY, QQQ) was strong and indicated plenty of good participation in these names. However, a lack of buyers in the small cap space knee-capped those stocks as the buyers in IWM and other small cap indices dried up. Still, an accumulation day racked up for the Nasdaq and SPX 500.
Wednesday’s support at 4,850 is still a good reference point. Stocks are not overbought here but are approaching that condition, meanwhile the SPX 500 still has 5k in its sights. That mark could fall easily this week with the goal sitting about 1% above current levels. There will be celebration but also a sell the news effect, too.
The Internals
What’s it mean?
While the big cap stocks were up on Friday it was small caps that suffered, with rates rising following the strong labor report. That put the scare into the Russell 2K, which is usually responsible for strength in the internals. Notice how poor the readings are here, with lower VOLD and ADD, the ADSPD finished under zero. Some ticks were strong but remember those are for NYSE and Nasdaq, the big cap indices that performed well. This bifurcation is likely to be resolved soon but if rates rise up that will blister the small caps..
The Dynamite
Economic Data:
- Monday:S&P Global Services PMI, ISM services, SLOOS
- Tuesday: Eurozone Retail sales
- Wednesday: Mortgage apps, crude oil inventories, consumer credit
- Thursday:jobless claims, WASDE
- Friday:
Earnings this week:
- Monday: CAT, MCD, EL, ON, CHGG, NXPI, PLTR, SPG
- Tuesday: AGCO, CHKP, CMI, DD, LLY, LIN, SPOT, AMGN, CAVA, CMG, CRUS, ELF F, FTNT SNAP, YUMC
- Wednesday:BABA, CVS, HLT, SLAB, YUM, XPO, ARM, COTY, PYPL, DIS
- Thursday:WMS, CYBR, HSY, K, MAS, RL, SWI, AFRM, NET, SYNA TTWO, TEX
- Friday:AMC, ROAD, PEP, SXT
Fed Watch:
Nothing much this week but Chair Powell is interviewed on 60 Minutes for Sunday evening. This past week saw the committee stand pat on monetary policy but they are contemplating the right timing for rate cuts. That is likely to come this year but not as soon as the market would like. The data shows inflation is still too high and the economy is running strong. Not an environment that needs rate cuts.
Stocks to Watch
Volatility – The VIX remains low under 14%, a dangerous level as a pop in volatility can occur at anytime, unexpected. You might recall some years ago just after Chair Powell took over there was a massive move higher in volatility, it was the month of February. Something to watch for.
Earnings – A deluge of earnings this week as we get a sampling across several areas including retail, industrial, technology, healthcare and entertainment. Disney, McDonalds, Lilly and Pepsi will be in focus.
Interest Rates – Following Friday’s huge labor report which showed more than 330K jobs created, interest rates popped higher as the market starts to price in fewer rate cuts down the road, as this was telegraphed Wednesday by Fed Chair Powell.