The Fuse
Equity futures are rather quiet following an up session Monday. That was a followthrough day from Monday which tells us there could be more upside. The SPX 500 has its eyes set on 4900, just more than 1% away. The Industrials closed above 38K for the first time ever. Buyers are showing a bit of exhaustion but with some big earnings later in the week they may be stepping up to add shares by week’s end.
Interest Rates are slightly higher along the curve, which may intrude upon the small cap rally that ensued Monday. The 2/10 yield curve is nearly flat but is starting to widen a bit. When that happens the odds of excessive rate cuts decline.
Upgrades this am for NVDA and AMD, two of the stronger movers last week. European stocks fell slightly as commodity stocks rallied. Gold is up slightly while crude is down just under 1%. Chinese markets rebounded after a report that authorities are considering a package to stabilize a slumping stock market.
Earnings this morning were mixed from several Dow Industrial names. Poor results from MMM but better numbers from RTX and PG are helping the indices recover from overnight lows. Verizon was also strong as as Lockheed Martin while DR Horton missed on estimates.
A heavy dose of earnings and important economic data is on tap for this week. In what is usually a challenging time for the bulls, last week’s pop on higher volume was a signal that the bulls are not finished. Some biotech conferences are coming up soon.
Pretty strong breadth Monday as the buyers came out in droves, led by the Russell 2K which moved up sharply all day long. Remember, a big index like that can really move the breadth needle even if large caps are not working well. That was the case, but as usual some followthrough would be confirmation.
Turnover was much lower today as expected following a high volume finish on Friday’s expiration. Some holdover volume from Friday hit the tape early in the day then a bit of lethargy set in, and volatility did rise up a bit. Next week is likely to be much heavier turnover with bigger earnings reports due and a Fed decision.
No giveback whatsoever though the markets did close well off their highs of the session. The Indices (save for the R2K) all closed at new highs, and with several Dow Industrial names out today and later in the week this will be the index to watch. A first time close above 38K was impressive, we see this making a run to 40K in short order.
The Internals
What’s it mean?
Internals were slightly pointed towards the bullish side of the ledger Monday. For the most part, volume trends were good and leaning bullish, notice the VOLD and strong TICKS all session long. This is a spillover effect from Friday’s action. VIX continued lower as realized volatility sank (not shown here). Put/call sank but notice the strength in ADD, the accumulation was strong thanks to small caps. We’ll see if they run it back today.
The Dynamite
Economic Data:
- Tuesday: N/A
- Wednesday: Flash PMI, crude inventories
- Thursday: Jobless claims, durable goods, GDP Q4 first look, new home sales
- Friday: PCE for December, Pending home sales
Earnings this week:
- Tuesday: MMM, VZ, GE, HAL, JNJ, PG, DHI, NFLX, ISRG, TXN, STLD, SYF
- Wednesday: ASML, T, GD, ELV, KMB, SAP, STX,LVS, CSX, IBM, LRCX, URI, TSLA, NOW
- Thursday: AAL, ALK, LUV, HUM VLO, DOW, UNP MKC, MBLY, NOC, SWH, INTC, KLAC, SBUX, VFC, V, COF, TMUS LHX, WDC
- Friday: AXP, CAT, CHD, CL, NSC
Fed Watch:
The FOMC heads into a quiet period before their first meeting of 2024. All eyes will be on the data coming out this week especially first look GDP from Q4. Some comments last week by committee members were meant to temper the excitement over a dovish policy. Members have argued it is far too early to think quick and large rate cuts are coming. If data this week shows the economy is still strong the committee is likely to ratchet back cuts even more. As of now it looks like 2-3 in 2024 but that could clearly change at any moment.
Stocks to Watch
Market Indices – The SPX 500 with a new all time high tagged on Friday was impressive, but the bulls would like to see a followthrough week.
Technology – The first big week of earnings for tech names such as Intel, IBM and Netflix. These stocks have shown good relative strength the past few months but will they say enough to keep prices elevated?
10 year yield – Don’t look now, but the 10 year has quietly moved back above 4% this past week. That is not much cause for concern yet, especially if inflation is contained over the next few price index reports. But certainly lower yields will help small cap stocks, the one index that is negative in 2024 and about 20% away from all time highs.