The Fuse
Equity futures are popping higher this morning after a nice rally in overseas markets. After the first couple of days this year were some jostling, the bulls are hoping for some strong statistics today that helps launch the markets higher towards the start of earnings season.
Interest Rates are starting to head down on the long end of the curve. Bonds are up nicely after tagging the 4.6% level the prior week.
Stocks remain vulnerable if rates are elevated for an extended period. Fed funds futures still pricing in about 1 1/2 rate cuts in 2025, that may be ambitious.
Stocks were higher overseas as buyers got interested in names that hit lower levels. Europe was higher by .3%, gold is barely up as is silver, crude oil higher by about .5%. Crude is roughly $74 per barrel as it stands. The dollar fell .2%, German 10 yr bund yields rose 2 bps, 10 yr treasury yields surprising up 2bps as well. Stocks in Japan were down 1.5%, Shanghai off .1% while Hong Kong down .4%.
Earnings are starting to trickle in this week, Apogee and Cal-Maine early in the week, Jefferies, Price-Smart and Delta along with Constellation Brands later on.
In what should be the first full week of trading this year is shortened by Thursday’s full close. Regardless, markets are trying to put together a string of winning days after a terrible finish to the year. It was a strong 2024 but that is now behind us. The economy is strong, employment still rolling along but inflation is sticky. Can earnings grow into 2025? Many strategists think so.
Breadth was much better Friday after limping into the new year. The problem here is far to many distribution days and down sessions with poor breadth. That is clearly an issue if you’re a bull, but the sensitive nature of this indicator makes it malleable, with potential to flip very quickly to the bullish side. New lows are expanding however, oscillators turned green but need a followthrough day.
Volume levels were pretty weak on Friday, telling us the conviction to buy after Thursday’s heavy selling was not there. Of course, there is time to right that ship but as we move away from the most bullish seasonal period into more malaise, there are going to be heavy gyrations and challenging days until more volume returns to the upside.
Support levels were tested a few times this week, namely the 5860-5870 area on the SPX 500. If that holds up this week there is some upside to be had. The small caps and Nasdaq had a banner day after testing some lower levels, but again followthrough is key.
The Internals
What’s it mean?
Some better internals Friday but mostly because the stock market was heavily oversold. VOLD was up nicely and even the ADD finished near the highs of the session. VIX turned lower and pushed towards 16%, some followthrough would be welcomed. TICKS were mostly green all session, especially on the Nasdaq. ADSPD was nearly a trend up day..
The Dynamite
Economic Data:
- Monday:Final services PMI, Factory orders
- Tuesday:trade deficit, ISM services, job openings, fed speak
- Wednesday:ADP, Fed meeting minutes, consumer credit
- Thursday:jobless claims, wholesale inventories
- Friday:Consumer sentiment, December payroll report
Earnings this week:
- Monday:n/a
- Tuesday:APOG, LNN, CALM
- Wednesday:ACI, HELE, MSCI, JEF
- Thursday:STZ, WBA, KBH, PSMT, WDFC
- Friday:DAL
Fed Watch:
Not much fed speak scheduled this week but some members came out last week and talked down monetary policy. It seems they all really want to pause at this point, at least for a few meetings, making it very transparent of their path. The market may not like it but that does not matter. The meeting minutes released this week will be interesting. Richmond Fed President Barkin speaks again Tuesday.
Stocks to Watch
Volatility – Stocks have been on a rollercoaster ride for a month, will that volatile action smooth out a bit? With earnings season coming up it could be a bumpy ride until then.
Jobs – Markets are expecting a fairly strong jobs report for December (155K), and if that happens with little inflation the Fed will continue to be cautious and may pause at this month’s meeting.
Bonds – Fixed income continues to move lower as yields press ahead. There is no need to add bonds here if inflation remains sticky, which is what the data and the Fed have been telling us.
