The Fuse
Stocks are rising in the pre-market following strong earnings from names like Netflix along with some good volume following through from last Friday’s sharp rally. Market volatility remains muted for the time being but that won’t always be the case. The investing community is getting quite giddy about markets amid the new Administration, just the type of condition ripe for a market whack.
Interest Rates are rising this morning a bit as fixed income investors are reflecting caution with new Trump Administration policies. Perhaps some of these (including tariffs) might be inflationary. For the most part, rates have been locked in a range the last month from 4.5-4.8 on the 10 year. If that breaks lower look for stock investors to start pushing hard, especially on the small caps. Stocks are mildly overbought here but that is no reason to short, rather simply ride the tide. Fed futures are starting to look for more help in justifying rate cuts.
Equity futures are up this morning following the lead from overseas markets. Stocks in Europe were higher by .3% let by Germany’s DAX and the CAC 40 in France. The dollar rose .1%, gold is slight higher as is crude oil. German 10 yr bund yields fell 1bp, the 10 yr US treasury yield held steady. In Asia stocks were mixed, Japan roared higher by 1.6% but Hong Kong and Shanghai were down 1% or more on recent profit taking.
Blowout earnings and guidance from Netflix is vaulting that stock about 15% this morning. We also had strong earnings from Interactive Brokers and United Airlines along with Seagate all from last night. This morning strong numbers from JNJ and in line numbers from Abbott Labs, strong earnings from Travelers.
After the great run the prior week into the three day holiday we expected to see a bit of giveback, but the bulls were not in that sort of move. Giving is so ‘last month’, as the strong breadth and volume (see below) and price action overwhelmed the bears and pushed the SPX 500 ever so close to an all-time high. The Nasdaq is right there as well, and given the new highs in cumulative volume breadth and strong internals that new high might be met very soon across the board./span>
Another solid day of breadth with stocks moving up on the first day of trade following the inauguration. Certainly the business community is abuzz with excitement and anticipation for better business conditions. If that does happen the stock market may have its sights set on a third straight banner year. Breadth as mentioned was very positive, about 5-1 rout of the bulls. Oscillators are pushing to an overbought reading, which means a whack could happen any day.
Another strong day for volume, the expansion of stock volume into the new high area is very bullish. It shows something if big institutions are willing to buy stocks at these high levels. It means the big money believes stocks are cheap relative to alternatives (like bonds). That being the case, heavy turnover this week will set the table for a run at new highs in all indices, and with news from earnings that will only serve as a tailwind.
We mentioned last week about the support levels tested early in the month and they held firm, and in fact helping to launch this market into a rally mode. The SPX 500 is bumping right up against an all-time high, which would be remarkable given the poor action earlier this month. Good support from below as many groups participated in this latest market upturn, and we see more to come in the days ahead.
The Internals
What’s it mean?
Complete domination by the bulls on Tuesday with the internals tilted in their favor. Just look at those ticks, heavy green all day and nary a sell program. TRIN was elevated a bit but the VOLD finished strong, highs of the session. VIX was muted all day and finished under 15%, the February future will be the front month starting today. The term structure still a bullish construct. ADSPD nearly had a trend up day. The internals portray more bullish action coming in the days ahead.
The Dynamite
Economic Data:
- Wednesday:Leading economic indicators
- Thursday:Jobless claims
- Friday:Existing home sales, consumer sentiment, PMI services and manufacturing
Earnings this week:
- 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?