The Fuse
On Fed day, markets are trying to rally for a second consecutive day but we know there will be some big movement after the decision today. Volatility is still elevated, VIX above 16% as the level has been one where markets tend to move with great anxiety. Tech stocks are bouncing back after Monday’s drubbing, end of the month also presents some interesting decisions or traders – sell or hold the gains?
Interest Rates are slightly lower this morning before the Fed policy decision on interest rates. Stocks have been strong this month but bonds have been in a no man’s land, yields just back to where they started the year. Fed futures are not expecting a move in rates today and do not see a possible cut until May at the earliest. Chair Powell is likely to reflect on the sticky inflation, strong economy and growth along with wage inflation settling down.
Equity futures are rallying this am, looking to follow overseas markets and post back to back wins. In Europe the STOXX was up .4%, a nice gain following Germany’s DAX.
The dollar was flat, gold also flat while crude oil is down .8%, just under $75 per barrel. Silver is unchanged. German 10 yr bund yields fell 2bps, US treasury 10 yr yields fell 1bp, Stocks in Japan were up 1% while markets in China were closed (Hong Kong as well).
Earnings last night were pretty good from F5, they beat and guided higher. Starbucks also had strong numbers and sees forecasts above consensus. Overnight strong earnings and bookings from ASML, which has been beaten up lately, so a nice recovery rally may ensue. Later tonight we’ll hear from Tesla, Meta, Microsoft, Lam Research, Celestica and a few others. Thursday am we have Mastercard, UPS, Dow, Caterpillar.
That was some turnaround for the markets! Heavy buying all over the place but with poor breadth and not much participation from the small caps. Of course, they were held back by a jump in rates again, we have reflected upon this so often lately. Yet, with big earnings out this week and a Fed decision due today there was not holding back. Heavy turnover as the markets have nearly recovered half their losses from Monday (save for the Industrials, who were actually higher). New highs are within spitting distance for the Industrials, they may have it today.
Breadth was not positive yesterday, as mentioned this indicator was hamstrung by weak fixed income action. We have noticed for months the inverse relationship between small caps and yields, that held again. Oscillators on the NYSE slid but the Nasdaq was higher, regaining some lost ground from the prior day. New highs are still beating up on new lows, that may continue for awhile.
Turnover was much weaker than Monday, which translates into residual short covering and a lack of committment by the bulls. That could change of course, the trend is up and pretty strong, though erratic in the short run. We have not had too many distribution days this month, Monday being only the second one I recall. But with the end of month nigh there could a surge in turnover through Friday’s close.
A bit of a dip early in the session got the juices flowing for the both bulls and bears. A reminder that the short term trend is not yet free from the bearish conditions, breadth has been good but not great, on this big up day we saw some support levels tested, though on the Nasdaq Monday’s gap is begging to be filled. That could happen if the bulls like what they hear this week with the Fed and earnings, which are coming in pretty strong. Industrials are knocking on the door of a new high.
The Internals
What’s it mean?
Stocks rose on moderate turnover, but the internals were actually pretty weak. The only bullish ones we can point to were the VIX and put/call, both headed downward. Tocks were moderate (red and green), so no advantage there. As breadth was bad we saw that in the VOLD, ADD and ADSPD, all lower and well off their highs of the session. It simply means buyers are waiting for some catalyst, it is probably the Fed meeting today (though I cannot see that being bullish or dovish, especially if a cut is way off).
The Dynamite
Economic Data:
- Wednesday:Retail/Wholesale inventories, trade balance, FOMC rate decision, Powell press conference
- Thursday:GDP first look Q4, jobless claims, pending home sales
- Friday:Employment cost index, PCE, income/spending, chicago PMI
Earnings this week:
- Wednesday:ASML, TMUS, ADP, DHR, TEVA, GD, VFC, NDAQ, TSLA, META, IBM, MSFT, LRCX, NOW, CLS, WDC
- Thursday:UPS, MA, DOW, NOK, LUV, CAT, CMCSA, MBLY, AAPL, INTC,V, KLAC, TEAM, BKR, DECK
- Friday:XOM, CVX, ABBV, CL, PSX, CHTR
Fed Watch:
The first fed meeting of the year with four new voting members this week. Fed funds futures are predicting a pause this time around and for the next meeting, but the May session might be the one where a cut is announced. Regardless, it will be important to listen to the press conference closely for clues on future monetary policy. As always, the data matter most here.
Stocks to Watch
Interest Rates – The first fed meeting of the year is this week, also the first one after a change over in the Administration. Chair Powell is locked in and focused on how to manage monetary policy, and with recent strength in jobs, manufacturing and pricing pressures it seems the committee is ready for a rather long pause. We’ll know more after the press conference Wednesday.
Mag 7 Names – It’s a big week for the Mag 7 as four of these names will report during the latter portion of the week. Is Tesla overdone? Will Microsoft and Meta push their AI initiatives even further? We’ll know more this week, and of course Apple on Thursday evening.
GDP – The first look GDP for Q4 is out Thursday morning after the Fed decision but the committee has a good read on growth. The Atlanta fed GDPNow says we grew about 3% in the quarter, we’ll have to see how much was driven by inflation. Employment cost and PCE Friday will be important to watch, too.