The Fuse
Equity futures are moving higher and trying to finish the week off on a bullish note. A weekly close above 5K for the SPX 500 would send a bullish sign to the markets and next week could see more followthrough, but let’s see how it plays out first. February is off the a good start with a 3.19% gain in the SPX 500 for the month, so a giveback would not be a surprise move.
Interest Rates are moderating today as the 2 year yield is up to 4.46%, the 10 year up a bit more than yesterday’s close. Some data out today as the labor department makes seasonal adjustments to the CPI. Bond investors are trying to figure out if the economic growth the last couple of quarters is sustainable or if there will be a dip. The treasury bond auction was well-received Thursday. The yield curve remains modestly inverted.
Not much news overnight but equity futures are rising up and if this move hold the SPX 500 will open above 5K. Europe’s Stoxx 600 were little changed as most equity markets around the globe are responding to the positive data story. However, some are worried that valuations have recently gotten out of control, and legitimate concern. The stock market trades north of 22x earnings and with some companies showing enthusiasm for the rest of 2024 (a handful) we could see a reset in earnings and valuation, and a market correction to come back in line.
Earnings came in hot n’ heavy last night. Reports from AFRM, BILL and PINS were strong but guidance was a bit weak, these stocks are off a bit this morning. However, NET is ripping higher after a nice beat and guide up, the stock is higher by more than 24%. Dexcom is down even after a modest beat, Pepsi reported this morning and is down a bit after a miss on revenues.
A tag of 5K on the SPX 500 towards the end of the day was all we got to see. It was simply the same divergence of action that has plagued the market for the better part of three weeks. As we have come to expect, during earnings season stocks tend to march to their own beat. Surprisingly, small caps forced their way to a nice win even as rates were higher early in the session. A weekly close above 5K for the SPX 500 on good breadth would send a very bullish signal tomorrow.
Breadth was good but not great, about 16-11 on the positive side. That’s much better than we have seen in recent days but as we know ‘gobs of breadth’ with markets at/near new highs is extremely positive for the trend to continue. We’ll keep a close eye under the hood as markets remain vulnerable if more issues are not advancing with the strong price action.
Chalk up an accumulation day for the small cap Russell 2K but the other three big indices could not produce the higher turnover numbers.
Yet still, new highs all around for those three but volume trends are poor. This is another symptom of the lack of interest at the moment with a rotation into less favored names and traders piling into stocks just before they release earnings.
With the 20 day moving average stepping up higher during this recent period we have even higher support levels, that spot is 4,875 on the SPX 500 and then 4,900. That would be only about 100 points lower, so a minor correction if the market accommodates the bears. Touching 5K on the SPX 500 is only symbolic, the stock market is getting a bit frothy here and the longer it goes without a correction the nastier it will be, and that could come in March.
What’s it mean?
The internals improved a bit but still they show a bit of concern. With the strong breadth we would have expected to see a bit better VOLD and ADD, though they did finish positively and at their highs of the session. Put/call is lower and that is bullish for markets, the VIX plunged late in the day and still languishes under 13%. That will be paid back eventually but right now it does not pay to fight the tape.
The Dynamite
Economic Data:
- Friday:
Earnings this week:
- 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.