The Fuse
Equity futures are quiet this morning as market players await the first release of Q4 GDP data. In addition, durable goods, jobless claims and retail/wholesale inventories will be released. The markets are trying to keep the bullish fumes alive and make an eventual run at 5K on the SPX 500.
Interest Rates are modestly lower as bond prices rises. Over the last few sessions we have seen the long end of the curve rising up ever so slightly, which has had a negative impact on small cap stocks and the like. Commodities have been strong though and that may limit some of the downside today.
Tesla earnings were mediocre as was the guidance, that stock is getting hit and having a negative effect on the market early. The ECB is expected to keep rates steady today but perhaps may indicate a cut is in the near future. Gold is flat while crude oil is higher by 1%. Boeing remains under pressure as the government shuts down production of their 737 MAX indefinitely.
Earnings from Tesla were horrible as they missed on gross margins and other metrics. IBM last night delivered a strong quarter as did ServiceNow and Lam Research. This morning we had strong earnings from Comcast and some airlines. Tonight we’ll hear from Intel, Visa, Capital One, L3Harris and KLAC.
It appeared the markets were going to move higher and frankly had enough juice from technology stocks to do it, but the buying fuel burned off just after midday and sellers took over. Strikingly, stocks are not overbought here according to several metrics but sentiment is getting a bit greedy (according to several views like fear/greed). Hence, a pullback should not be a surprise, frankly a scary one would set the market back in motion.
Breadth remains a problem, especially as small caps continue to languish. This is happening for various reasons, mostly due to rising interest rates on the long end of the yield curve. Remember, higher rates are like kryptonite for small caps. Breadth remains on a sell signal but has been flipping bak n’ forth for days and could flip back next week to a buy signal.
Turnover was lower Wednesday as the rising stock market just did not have much conviction. That is a good reason for the market selling off later in the day, but a mild pullback was to be expected. Remember, market volatility remains very low and as such invites sellers to come out of the wood work. We are coming up on the end of the month next week and certainly a strong month of January is going to offer a chance to books gains. That kind of volume will be notable.
4,900 on the SPX 500 has been breached but the selling opportunity was too much to overcome. We’ll see if that level can be tested again, the highs for the day just about 4,903 on the index, so a new high and a new closing high. Nasdaq was strong but the Dow Transports were extremely poor, closing down nearly 1% which is nearly the same as the Russell 2K. It’s hard to be bearish during earnings season, but…
The Internals
What’s it mean?
What looked like a breakout day turned sour, and actually the internals told what was going to happen early on. Notice the weakness in ther VOLD and ADD, which hit their highs early in the day and proceeded to sink. Also the VIX, which was down most of the day but did finish in the green. Ticks were mixed but mostly red, a consolidation day here much like Monday. Some big economic data later in the week will drive the action.
The Dynamite
Economic Data:
- Thursday: Jobless claims, durable goods, GDP Q4 first look, new home sales
- Friday: PCE for December, Pending home sales
Earnings this week:
- 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.