The Fuse
Stocks are down sharply this morning after taking a nasty spill last night. President Trump announced some high tariffs for Canada, one of the biggest trading partners of the US and slapped them at 35%, higher than expected.
Interest Rates are rising as tension with trade policy with Canada has an inflationary potential for the economy. Bond selling and gold buying is attributable to this, risk off is the name of the game today. Fed futures still cling to 2 1/2 rate cuts this year, with high yield backing off this morning with equities.
With markets selling off this morning they also fell in Europe, the STOXX down .5% led by drops in France and Germany. The FTSE was flat, US dollar climbed .1%. Gold is up about 1% but silver is higher by 2.8%, a very sizable move up. Crude is also higher by .7%. German 10 yr bund yields fell 1bp, US 10 yr treasury yields rose up 2bps, stocks in Asia were mixed again with the Japan index off .2% but the Hang Seng gained .9%, Shanghai flat.
Solid earnings last night with raised guidance from Levi and PriceSmart. We’ll have banks to consider next week.
Solid day for the bulls as they took advantage of low volatility and very little news flow. Sure, President Trump slapped a big tariff on Brazil but that was expected to happen, and the blunt force of such announcements is just not killing the markets these days. That can change of course, but with market players keenly interested in the upcoming earnings season, who needs distractions.
Solid breadth on Thursday as the markets expanded higher to hit new highs. Very good breadth again from the small caps (IWM) helped lead the way, even as the Nasdaq 100 was the weak sister. No question hitting new highs is bullish, oscillators are in green territory and new highs are expanding again. If the IWM ever gets close to a new high that might really push stocks higher.
Another day of poor volume but it’s not a tragedy. After all, traders and investors are waiting to put money to work during earnings season, this one could be a boom time period. Given the recent rally a bit of a slowdown could be expected, and with some earnings and inflation reports due out next week the fireworks may just be getting started.
No pullback yesterday as the bulls remain in charge. If/when that does happen we are likely to see a few nasty sessions, but that is likely down the road on the calendar. The IWM and Industrials are in control right here as buyers flock to these names, just in time for earnings revival.
The Internals
What’s it mean?
More strength from the internals yesterday with solid VOLD and even the ADD participated, though weaker end of day. Some strong buy programs early and often all day yesterday, with put/calls lower and the VIX in the tank the bulls have the ball and can start to run. The only concern would be if they have already run out of gas. The internals say ‘not yet’.
The Dynamite
Economic Data:
- Friday:US federal budget
Earnings this week:
- Friday:
Fed Watch:
With that strong labor report on Thursday it seems the Fed can still sit on its hands with monetary policy. The committee is still concerned over inflation that may be spawned from tariffs, and rightly so. However, wages are starting tick higher as well and remain well above the committee’s objective. The meeting minutes released this week will give us some clues as to what they were thinking last month.
Stocks to Watch
VIX – We have been in low lands with volatility for the past couple of weeks leading into the holiday weekend. Now that it’s over we may see a payback for that complacency. With trade deadlines hitting this week there are new uncertainties to deal with.
Banks/Financials – Coming off a very strong week it’ll be interesting to see if banks give back some recent gains or hold onto them as we approach their earnings start the following week.
Apple – The big iPhone and MAC producer finally had a positive week, maybe it was the deal the US did with Vietnam. Regardless, a 5% over the last 5 trading days is impressive, can the stock build on it? Next up is the 200 day moving average at 222.
