The Fuse
Equity futures are rallying after a three-day weekend and the inauguration of a new President in the USA. Stocks are trying to pick up where they left off Friday, continuing a positive run into the start of heavy earnings releases.
Interest Rates are pushing down as bond buyers are back today. That is a turn of events, but perhaps last week’s inflation numbers indicate a slow down in price increases. There is a cause and effect with rates and inflation, if the latter declines more the former will start to move lower in anticipation of rate cuts. The Fed is going to play it cautiously.
Stocks in Europe were flat overnight but the dollar index rose sharply, up .4%. That is highly unusual and does not portray inflation. Gold is modestly lower, Crude is down 2% coming off high levels set last week. German 10 yr bund yields fell 2 bps but US treasury yields fell sharply, down 6pbs. Perhaps money is flowing after the new administration opens for business. Stocks in Asia were mixed, Japan gained .3% while Hong Kong was up nearly 1%, Shanghai down .1%.
Earnings start up in a big way this week. We’ll hear from United, Netflix, Seagate, Interactive Brokers, and Capital One tonight, this morning 3M, Schwab, DHI posted strong earnings with solid guidance.
The stock market was closed Monday in observance of the MLK Birthday holiday. This is the fourth short week out of the last five dating back to Christmas. Not much on the economic data front this week but certainly there has been enough to spur debate at next week’s Fed meeting, the first of the year. Stocks are trying to continue their advance following a sharply higher week, but with a crash in volatility the last several days it will be difficult for that momentum to continue if the VIX rises up. Overall, price action is pretty decent leading into the coming earnings barrage./span>
Good breadth all around as stocks are rising up across the board. Positive and expanding breadth is a good sign for a market bull trend to continue. The breadth oscillator is now on a buy signal. McClellan Oscillators are moving towards a deep overbought reading, new highs are starting to expand over new lows. That indicator is no longer on a sell signal. Can the rally continue forward if breadth weaknens?
Perhaps, but better to have strong breadth supporting the move than not.
Volume trends have started to improve. We did have an accumulation day Friday but of course that was magnified by the heavy options expiration. We would like to see volume expanding more on the up sessions, showing some conviction by institutional money. By most accounts the volume levels have been somewhat low, not surprising coming off a big year in 2024. If there is an expansion with price increases that pushes up the odds of better upside down the road.
For now the test of the lower level of support or the 100 day moving average appears to have been successful on the SPX 500. The Nasdaq also tested that 100 day successfully, the Russell 2K appears to have skirted disaster by bouncing hard off the 200 day moving average. This index is looking for bond yields to drop more, the 10 year below 4.6%.
The Internals
What’s it mean?
Much improvement this week for the internals. That is certainly a relief to the bulls with a major worry about markets following the trend down. Ticks were pretty strong, the VOLD finished in the higher end of the range but the ADD finished lower, a trend we saw too many times in December (bearish). Put/calls sank as well, there is a good chance for followthrough Tuesday. The VIX was smashed, as we often see before a holiday.
The Dynamite
Economic Data:
- Monday:N/A
- Tuesday:N/A
- Wednesday:Leading economic indicators
- Thursday:Jobless claims
- Friday:Existing home sales, consumer sentiment, PMI services and manufacturing
Earnings this week:
- Monday:N/A
- Tuesday:MMM, DHI, KEY, SCHW, UMC, NFLX, UAL, COF, IBKR, STX, ZION
- Wednesday:ALLY, ABT, PG, JNJ, HAL, GEV, TRV, KMI, AA, DFS, CADE, HZNC, CATY
- Thursday:GE, AAL, HBAN, ELV, ALK, UNP, TXN, CSX
- Friday:VZ, AXP, HCA, ERIC, MOG.A, NEE
Fed Watch:
The Fed has lots to consider with some benign inflation readings and strong jobs report. The next meeting is in about 10 days, this will be the first one of 2025 with some new voting members on board. Most on the committee are reticent to move rates right here with the economy very strong, but if inflation moves lower then we could certainly see the markets looking for cuts in 2025. As it stands, maybe 1-2 at most.
Stocks to Watch
Earnings – A big week for earnings as some tech names start talking about the last quarter of the year. It’ll be interesting to see if the market holds up into this short week.
Rates – With a new administration in place, will inflation finally fall as promised? So far bond investors are taking the bait.
Volatility – The VIX was smashed last week into the long weekend, did it go down to far or will volatility sellers continue to hammer it?
