The Fuse
Equity futures are getting hammered following some heavy earnings reports that seemed to have disappointed anxious investors. Stocks have been on the move this month in anticipation of strong earnings and guidance. Some are delivering but as we saw last night, perhaps the move in stocks this month was just a bit too much. Today is the last day of trading in January, the SPX 500 and Nasdaq are higher by more than 3% as of Thursday’s close, a very strong performance.
Interest Rates are dipping again this am as investors await a monetary policy decision from the Federal Reserve. Today wraps up the first meeting of the year for the committee, they are largely seen as holding rates steady but a press conference to follow may hint at when a rate cut might be happening.
We are sitting with a risk off day so it may not matter what he says later, sellers are in control.
European stocks gained modest ground while German 10 yr bund yield fell. Stocks in Asia were mixed as the Nikkei in Japan climbed and the Hang Seng in Hong Kong lost ground, down 1.4%. Shanghai also dropped sharply, another 1.5%. Tomorrow the Bank of England will have a decision on monetary policy, where inflation has come down sharply in and around London.
Earnings were good but disappointing on the guidance as AMD, Google and Microsoft are shedding recent gains. It is mostly a ‘sell the news’ event, these companies delivered very strong numbers but expectations were very high. Starbucks also missed but is higher due to much lowered expectations. Phillips 66 delivered a monster beat this morning and is rising up sharply for it.
Stocks were on the defensive all day long as buyers were holding back before the barrage of news was ready to begin. This week alone will have a triple decker of Fed, jobs and earnings all before the end of the week. Toss in the end of the month and there is plenty to worry about with a market that remains overbought. That is no reason to short of course, but certainly a reason to worry.
Breadth was weak but on a net basis with Monday remains positive, though that could change quickly. There has been decent money flows lately which has been parking itself in stocks, but as this recent rally starts to get far too long there is the worry the sellers will start taking control. Later this week is a new month (Thursday) so perhaps we see a return to risk assets with new money flows and better breadth.
Volume trends were moderate as we saw a strong day for the industrials but the small cap Russell 2K saw a distribution day. This is where big money sellers take control and sell more than they buy. That is often the case after a big market run up, such as we have seen lately. Is it cause for concern? Not necessarily, unless there were a number of these days in a row or over a short period of time.
It appeared the bulls were ready to make a run at history and the 5K mark on the SPX 500 but it wasn’t meant to be. That’s fine though, stocks are still rather overbought and are still enjoying a few more days of bullish seasonality. Last night’s earnings however were not greeted with cheers, but we’ll have to see how things unfold after more new hit’s the street.
The Internals
What’s it mean?
Poor action for the internals all session long pretty much told the story here for the markets. VOLD backed off sharply as did the ADD but that indicator finished at its highs of the day. TICKS were mostly red today, especially on Nasdaq. VIX still remains muted here but put/calls have started to pick up again, something to watch closely.
The Dynamite
Economic Data:
- Wednesday:Fed rate decision, ADP report, crude inventories
- Thursday: Jobless claims, productivity/labor costs, ISM, construction spending
- Friday: Employment report, factory order, Michigan consumer sentiment
Earnings this week:
- Wednesday: BA, EAT, MA, ROK, KLIC, QRVO, QCOM, WCN
- Thursday: ETN, RACE, HON, LAZ, MRK, SWK, AMZN, AAPL, META, BZH, HOLX
- Friday: ABBV, CVX, XON, CHD, QSR
Fed Watch:
Another huge week for markets as the Fed will sit down for their first meeting of 2024. Fed futures are predicting no change in the current rate policy but perhaps in the statement some wording that might hint of rate cuts. The projections last month pretty much did that, but there is a wide disparity between what the Fed’s reality is versus the market. Perhaps some of that differential will be narrowed this week. The futures market still sees 5-6 rate cuts this year.
Stocks to Watch
Earnings – Thursday is a big day but so is Tuesday, which has AMD, MSFT, GOOGL, SBUX to set the table. Thursday has Apple, Amazon, Meta, Atlassian and others. These earnings reports will definitely drive market volatility.
Interest Rates – With a policy meeting this week we may see big moves in the 2 year yield. Note, the spread between 2’s and 10’s has narrowed significantly as the market prepares for a pivot in monetary policy (soon).
Economic Data – with all that is happening it is also a big week for data (see above). We’ll have the January employment report, ISM data, productivity/labor along with confidence and sentiment data.