The Fuse
Equity futures are sharply lower this morning but well off their lows overnight. Heavy selling hit the markets after Europe’s markets opened for trading. Volatility is rising a bit as a ‘payback’ for dropping sharply last week. But, at under 14% the VIX is not signaling a devastating drop as of yet.
Interest Rates are up sharply this am with the 10 year above 4% again. That level seems to be like kryptonite for markets. Over in Europe officials remain hawkish on monetary policy as few of them see rate cuts coming in 2024. the 2 year in the US is above 4.2% as well, fed funds futures see the FOMC not moving again in January but with a strong chance of the first rate cut in March.
Donald Trump won the Iowa caucus as primary voting in the US gets kicked started. Fed Governor Chris Waller delivers some comments later Tuesday and may discuss recent inflation data and the economy.
More banks are in focus as Goldman Sachs and Morgan Stanley deliver 4th quarter earnings this morning. Friday’s release of big bank earnings failed to stimulate buying in the markets. Retail sales loom large this week as we’ll find out if follow-on spending from the holiday season is in full bloom.
It’s a short week of trading as Monday markets were closed for holiday. However, a big expiration week is upon us as LEAPS will expire this coming Friday on the close.
Breadth was positive on Friday but not all that impressive. Breadth by volume (VOLD) was poor while the TRIN rose up, which tells us more issues were higher than supported by volume. Something to watch for, breadth remains on a sell signal but has been flipping back and forth.
Volume retreated on Friday as it appears traders headed for the exits and a three day holiday weekend early. Still, market volatility was evident with big moves up and down. Turnover is likely to improve next week with a big options expiration on Friday.
Hard to believe that after all the volatility surrounding the inflation reports this week the SPX 500 basically went nowhere. From Wed-Fri no net movement. We still see 4,800 as good resistance while 4,700 and then 4,600 good support. Stocks are in a trading range.
The Internals
What’s it mean?
Not much going on with the internals on Friday. Notice the weakness in VOLD and ADD, nothing to brag about for the bulls or bears. TRIN rose up as issues were stronger than volume, notice the gaps in the ticks, there were times of very little trading and programs all day long. VIX rose modestly but remains at a dangerously low level.
The Dynamite
Economic Data:
- Monday: N/A
- Tuesday:Eurozone inflation, sentiment index
- Wednesday: Retail sales, IP/cap utilization, Biz inventories, housing market index
- Thursday: Jobless claims, housing starts, crude inventories
- Friday: Existing home sales, Michigan consumer sentiment
Earnings this week:
- Monday: N/A
- Tuesday: GS, MS, PNC, IBKR, PRGS
- Wednesday: SCHW, AA, DFS
- Thursday: AAL, FAST, TSM, JBHT, PPG
- Friday: ALLY, CMA, STT
Fed Watch:
Some outspoken Fed speakers were out last week preaching the gospel. The biggest message sent was their belief markets are being to aggressive with expected rate cuts, how many and how soon. The latter is of course based on the data while the former is also based on the data and how a reduction in inflation happens to coincide with a slowing economy.
Stocks to Watch
Financials – Friday was a hint of how bank earnings may hit this season: missing on the top line and beating on the bottom line. Plenty to digest this coming week.
Volatility – We’ll again be watching the VIX as it moved down below 13% once again this past week. That sort of complacency is often paid back following a holiday-shortened weekend.
Gold – The yellow metal had a strong Friday after some turmoil arose in the Red Sea area. We often see gold rising when such issues occur, and the metal is within spitting distance of new all time highs.