The Fuse
Equity futures are down again making it possibly the fourth straight day of losses. This is turning out to be one of the worst starts for the markets in some time, and now with a modestly oversold short term condition we could see a good-sized bounced coming in days. Oscillators are not wildly bearish yet but are getting there.
Interest Rates are on the rise again as the long end of the curve in yield moves upward. With the big surge in bond prices last month yields fell sharply in anticipation of more rate cuts than the Fed may promise to offer. When there is a disconnect in communication like this the market is not often right (as it relates to Fed policy expectations).
It’s all about the jobs report today, the NFP will be released for December employment and consensus is saying 164K jobs were created last month which is down from November’s 199K, and the unemployment rate should tick up to 3.8%. Wages may have declined a bit last month. Banks gained some ground yesterday ahead of next week’s start of earnings season. Banks are first up. Volatility is rising as investors start reaching for portfolio protection.
Nothing much this week on the earnings front but Cal-Maine Foods delivered poor numbers on Wednesday. Big banks kick things off next week.
Stocks continued their slide in the new year as the indices were pounded all day long. Could it be that tax selling was put off until the new year? It’s possible but certainly the conditions have been ripe for a pullback after a monstrous run, no matter what the calendar says. In other words, selling to take profits before anyone does regardless of what day it is.
Breadth was negative but barely, some groups like tech, healthcare and energy led the way but the indices were mostly lower. The Nasdaq fell hard again under mild distribution, which has also been the case this week for the SPX 500. Breadth indicators are back on sell signals.
More selling on Thursday but to a lesser degree, at some point much of the capital that flowed in from the beginning of the year will be put to work. As of now, a market in distribution (institutional selling) needs to be avoided or played defensively. Sellers continue to hit the bid as volume trends turn bearish.
The bulls were hoping the SPX 500 would hold at 4700 and it made a gallant try for it, but that went by the wayside on Thursday.
This recent selloff has been slow and methodical, through some levels many thought would hold. We’ll stick to our guns and look for a test of 4600 before too long and perhaps maybe a dip lower to 4550 or so before some serious buying begins.
The Internals
What’s it mean?
Once again the internals told the story of the trading day. VOLD started out positively as did the markets (barely), but the selling started and suddenly everything went downhill from there. Ticks were heavy red all session long while put/calls continue to rise. This tells us a large accumulation of protection is being bought each day. VIX climbed and finished above 14%, still relatively low but that could soon be a problem.
The Dynamite
Economic Data:
- Friday:NFP report, ISM services, Factory Orders
Earnings this week:
- Friday:STZ, GBX
Fed Watch:
The Fed meeting minutes from the December session will be released on Wednesday afternoon, which could offer more clues as to what the committee was thinking. Certainly the projections and the promise of rate cuts is going to ignite a response, but perhaps the minutes show the committee will poor some cold water on the market. Fed funds futures are looking for 6-7 cuts in 2024, probably far too much exuberance.
Stocks/Issues to Watch this Week
Jobs Report – Will this week’s job data start to show the economy is slowing down? Following a couple of strong numbers we could see that happen, and if there is some friendly wage data that might juice the markets on Friday.
Energy – Oil prices remain elevated but supply issues remain a problem. We are watching the $75 per barrel level closely and if crude rises above then technically there is room up to $82.
Retailers – We may hear from some retailers this week on how holiday shopping ended. Most companies were fairly optimistic and had good inventory levels, we’ll have to see the numbers before making an assessment.