The Fuse
Equity futures are getting drilled this morning as investors start seeing the prospects of a slowing economy and how that might translate into slower earnings growth. With a very strong first half of 2024 perhaps the markets got ahead of themselves. Perhaps inflation continues to be a bit sticky.
Interest Rates are back down this am after rising up sharply on Monday. Bond holders shed their investments yesterday, likely with some worry over the coming bond auctions not being taken well. That said, yields are at their highest levels in about a month and may be headed down again. Fed futures still sell perhaps two cuts in rates by end of 2024.
Oil prices remain elevated as hurricane Beryl wreaks havoc in the Atlantic. WTI crude is now above $84 per barrel, its highest level since late April. Gold is down slightly as is silver, Europe gave back some gains from Monday while Stocks in Asia were up strong. We’ll hear from Chair Powell this morning as he speaks from Portugal.
Earnings are not in focus here this week, only Constellation Brands is the biggest name on the docket.
Monday was mostly an up day but not for the small caps, that divergence with large caps is even wider. The trend remains up though for the Nasdaq and SPX 500, which are right near all time highs. We often see a nice spurt of buying at the beginning of the month, that really did not happen on Monday and with this morning’s early retreat the markets are stuck. Yet, we have a holiday coming up and as volatility rises we often see it come down just before the holiday begins..
Breadth was really bad Monday, masking the day as it really was not all that positive. Decliners crushed advancers, the oscillators turned negative after a very brief time in positive territory. New highs stalled vs new lows, this indicator is in neutral now but needs to be watch closely.
Friday’s volume was quite large due to some big option expiration series, so Monday was only a fraction. As a result, NOT an accumulation day (price up, volume down), there are few catalysts to drive stocks higher until perhaps Friday. That is after the holiday and when the jobs report for June is released. We should start to see better volume in the coming weeks as earnings season gets underway.
The SPX 500 is starting to work lower to test areas of support. We see 5,400 as good support then the gap at 5,375 should come into play. The IWM seems to be holding the 200 level quite firm. The Nasdaq has the 20 ma at 19,438 and 19,200 as good support if there is a bigger selloff.
The Internals
What’s it mean?
Yes, the indices were conspicuously higher on Monday but the internals did NOT confirm the move. Actually, they were atrocious. A sea of red for the ticks all session long, the VOLD and ADD straight down and never recovered. Put/calls were on the rise too, the VIX, higher early did manage to come down sharply but this indicator has been on a buy signal for months.
The Dynamite
Economic Data:
- Tuesday:JOLTS, auto sales
- Wednesday:ADP, services PMI, factory orders, ISM services, fed meeting minutes
- Thursday:N/A
- Friday:employment report for June,
Earnings this week:
- Tuesday:MSC
- Wednesday:STZ, BB
- Thursday:N/A
- Friday:N/A
Fed Watch:
This past week we heard from several Fed speakers who seem to like the trend inflation is taking. That would be lower of course, the PCE from May showed a flat month/month and lower annual number, not to the 2% target but getting there. It is increasingly like the Fed is going to cut rates at some point in 2024, more likely in September if more data shows the trend continuing. All eyes/ears on Chair Powell on Tuesday as he speaks in Portugal, later in the week NY Fed president Williams is out twice. We’ll also have the Fed meeting minutes released Wednesday during the day from the June meeting.
Stocks to Watch
Volatility – The VIX remains extremely low here and could even bust lower with a holiday coming up. We often see volatility recent and sell off before a holiday session. The VIX is telling us buyers and sellers seem satisfied at this level.
Technology – After a stellar first half of the year can the momentum continue? Nasdaq had a strong 17% gain following an amazing 2023.
The uptrend remains in tact as sellers are not interested in letting go just yet, certainly not while the Fed looks ready to pivot towards an easier policy.
