The Fuse
Equity futures are modestly higher and mixed as the crowd awaits December CPI. Inflation is set to pick up a bit from November on headline but with core CPI remaining steady from the prior month. Stocks have had a pretty good week so far, reversing the trend that started down at the beginning of the year. Euro stocks were down overnight but in Japan a more than 1% gain as stocks there hit a 30 year high.
Interest Rates are falling this am as traders square up in front of today’s December CPI number. As you recall, the last three months have been rather benign and the 3 month moving average is substantially lower. Yields have fallen across the curve as the market is expecting more rate cuts than the Fed has suggested (from their notes last month).
The big news overnight was approval for a spot ETF on Bitcoin, which could start trading very soon. It’s been a long time coming and many believe this will lead to more buying in crypto land. Bitcoin had a fabulous year in 2023, rising up 160%, the best asset class results by far of any. Google and Amazon announced some layoffs after the close. Gold is up about 9.7 at this time while crude is also on the rise, at 72.73 per bbl.
Earnings season kicks off Friday with the big banks reporting (most of them), along with Delta and United Health.
We’ll also get the PPI for December released, too. Two Fed speakers out today as well.
Breadth improved from the prior day but still there were sellers out there. A marginal win for the bulls, the NYSE won 15-12, hardly the big decisive win here with markets up .5% or better. It seems as the markets have come back from a miserable start to 2024 the bullish fever from late last year is just not present. Maybe that changes when earnings season gets going.
Turnover was poor again as buyers were not eager to jump into the market with both feet. Price action was good and improved over the trading day and that helped trigger some buy programs. A lack of sellers means prices are not falling and there is potentially good buying to be had. This week’s inflation data will certainly bring some volume through the pipeline.
It sure looked as if the 4,800 level was going to be tested on the SPX 500 yesterday, but all for naught. Regardless, the index is still within spitting distance and that means a positive response to CPI means a push above there is imminent. We still see 4,700 as good support, markets are not entirely oversold here and could rally before the long weekend.
What’s it mean?
What seemed like a ho-hum day was actually pretty constructive. The internals do not tell the entire story, but clearly a positive from price action is something to recognize regardless of the internal conditions. VOLD and ADD, which usually lead the markets were pretty much absent. The VIX declined again while the TICKS were heavily bullish, strong move upward in concentrated buying and buy programs.
Put/call spiked end of day, probably more due to short covering. We may see big moves coming later this week in the internals, stay tuned.
The Dynamite
Economic Data:
- Thursday: CPI, Jobless claims
- Friday: PPI
Earnings this week:
- Thursday: INFY
- Friday: BLK, BK, C, DAL, JPM, UNH, WFC, BAC
Fed Watch:
The release of the prior meeting’s minutes last week struck a tone of cautious optimism. On the one hand, the committee seemed pleased with the trend of inflation coming down and acknowledging their strong rates have been working. On the other hand, they dismissed the ‘all clear’ signal completely, preferring to err on the side of caution even as the economy starts to slow down. They introduced the idea of rate cuts in 2024 but refused to say when, keeping with their style of waiting on the data. This week might have some member talking down the rate cut expectations set in futures markets.
Stocks to Watch
Oil – Crude oil has been creeping higher of late in response to turmoil in the red sea but also likely due to more supply constraints.
That will keep a nice bid under crude as we see WTIC make another run towards $80. The chart is getting bullish here.
Banks/Financials – Friday is the first big day of earnings for Q4 and we’ll hear from some big major banks (see above). What they say about their business, credit, liquidity and financial conditions will be crucial. These stocks have run hard for three months so any bit of caution is likely to get slapped down.
Apple – A couple of downgrades this week following the end of the quarter has put Apple investors on their heels. In years past these pullbacks have been tremendous buying opportunities, is this going to be another one? The stock tagged the 200 ma on Friday.