The Fuse
Equity futures are trying to bounce back from a nasty spill Thursday. The recent drop has been fast and furious, likely driven by uncertainties (election) and monetary policy. Stocks are modestly down for the week but are looking to finish up strong.
Interest Rates are slightly higher as the 10 year yield makes a move on 4.2% from below. This is an important level for bond traders and fed funds futures traders. Currently the futures market is holding onto 3 rate cuts in 2024 but just barely. The curve was flattening out recently but is back to steepening, which puts pressure on stocks (mostly small caps).
Perhaps President Biden will step away from the election and a new slate of candidates will appear, including Vice President Harris. A major outage caused airlines to shut down as well as ATM’s in a mini crisis caused by Crowdstrike. In Europe the STOXX was down a bit while in Asia the Shanghai and Hong Kong markets were slammed. Gold is getting hammered early, crude oil down towards $80 per barrel.
Earnings from Netflix last night were mixed but the stock is up modestly this morning. AXP with a beat before the open, the same for SLB but Halliburton missed on revenues. Travelers reported strong earnings and raised guidance.
Another nasty down session for markets are the selling spilled over from Wednesday’s thrashing. It is clear stocks are not being pursued at these high levels, and with some political uncertainty on the horizon there is no doubt traders are taking chips off the table quickly. It’s been a good year so far, why give anything back? A 3-5% correction would feel painful if you stay with it, and since monetary policy has not changed, it might be difficult to recover steep losses.
More poor breadth in a day that started out strong. Better than 3-1 negative as the sellers were building up all session long. Many were hoping the selling was over on Wednesday but that turned out to be a mistake. Oscillators have now backed away from overbought but are still in the green. Another down day though and they will penetrate zero.
Another day of strong distribution pushed the markets down. No question this is a corrective period with high volume down sessions and very poor price action. We may have seen the worst of it though, but two straight sessions of nasty price moves makes us wonder if there is more to come. Higher volume selling today would indicate that to be the case.
More testing of lower levels today, the SPX 500 tested down to 5522 yesterday and that may be a good support area. That was right below the 20 day moving average, an area where big drops often end. The Nasdaq fell as well but not as much, the support is now at 19,300 but 19K might hold first. The Industrials have 40K as good support here.
The Internals
What’s it mean?
Messy internals yesterday, just look at the VOLD and the ADD to get a read. Also, put/calls are on the rise, that should be a concern especially with the VIX moving upward. Ticks were all a sea of red, plenty of sell programs to go around. End of the week is often a time when traders take refuge in cash, we might see that again today.
The Dynamite
Economic Data:
- Friday:Japan Inflation rate (June)
Earnings this week:
- Friday:AXP, SLB, TRV, HAL
Fed Watch:
A pretty nice job by Chair Powell last week on the Hill. In double testimony he re-affirmed the committee’s need to watch the data and hinted the next move would likely be a cut rather than a raise. Higher for longer was not heard much, meaning they intend to cut rates at some point this year. Other fed speakers reiterated the same position. Chair Powell speaks on Monday, two other fed speakers are out later in the week.
Stocks/Issues to Watch This Week
Retail – Sales for June are out Tuesday morning and I will be looking for some strength following a couple of poor readings from the Spring.
Amazon – Kicking off prime days this week (Tue/Wed) this is a very popular event where shoppers go crazy for bargains. This has become a huge staple for Amazon’s earnings.
Tesla – After an explosive month the stock had virtually recovered all of its 2024 losses by Wednesday. This is a high momentum name that will definitely move markets. Any news about this car is going to bring out the traders in spades, with expiration on Friday it could get interesting.
