The Fuse
Equity futures are getting a lift this morning following news last night of a trade deal between the US and Japan. The two countries have ironed out an agreement that appears favorable to the US and on their terms. Markets are liking deals getting done, new highs may continue this week.
Interest Rates are on the rise early this am following the Japan/US deal making. Bonds may see this perhaps as inflationary, long end of the curve is expanding. High yield remains interesting with a strong economic backdrop. Fed funds see no cut at next week’s meeting but perhaps one in September may soon be fully priced in.
Equities in Europe moved sharply higher, rising up 1% on the STOXX led by solid moves from France and Germany. The FTSE rallied too, up .4% while the dollar index fell .1%. Crude is sliding, gold is down a bit and silver is mostly unchanged. German 10 yr bund yields rose up 3bps and so did 10 yr US treasury yields, in Asia a mixed picture with the Nikkei climbing 3.5% on the deal with the US, Hong Kong up 1.3% and Shanghai steady.
Earnings last night from Capital One were strong as was guidance, SAP beat but missed on their forward guidance while Intuitive Surgical had a nice beat across the board. Tonight we hear from a couple of MAG 7 names, Google and Tesla along with IBM and Chipotle. Tomorrow am American Air, Southwest, UNP, Honeywell and Dow.
A bit of selling early in the day after stocks were higher overnight caused a bit of worry but by the end of the day the SPX 500, Industrials and small caps all sported winning sessions. The Nasdaq took it on the chin but it had be quite strong recently, due for a rest. With earning season in full swing it may be difficult for the bears to catch a whiff of selling as we often see markets rally at least until mid-August.
Very strong breadth Tuesday pushes this indicator back into the bullish camp. The bulls can thank small caps, specifically small banks and the homebuilding group for the strong relative performance. Oscillators are mixed, Nasdaq is now positive but NYSE is not, new highs expanded a bit which is the first time in a few weeks. A strong day here would solidify the trend as we see the SPX 500 make a run at 6,500.
Decent volume especially in small caps which sported an accumulation day. In fact, the industrial did as well, the Dow 30 index is now about 1% away from an all-time high, and that could be exceeded very soon with several names reporting this week like IBM, Dow and Honeywell. Strong volume days when the market is higher is indicative of more to come.
Sellers tried to take the market lower yesterday but the dip buyers stepped in at the opportune time. Turns out the bearish threat was simply a probe to test lower levels. There is a chance to hit that 20 day moving average though, it is rising at a fast clip so maybe a 1% selloff would be enough to test this level successfully and let the dip buyers have their chances again.
The Internals
What’s it mean?
Just outstanding internals all the way around. VOLD closed sharply higher as did the ADD, something we don’t see much of recently. The ADSPD nearly hit a trend up day, and those ticks were super strong all session long, plenty of buy programs to go around. VIX stayed low while the put/call ratio remains sedate. Another day like this and it is game on for the bulls.
The Dynamite
Economic Data:
- Wednesday:Existing home sales
- Thursday:Jobless claims, PMI’s, new home sales
- Friday:Durable goods
Earnings this week:
- Wednesday:GEV, FCX, FI, TMO, T, HAS, NEE, TSLA, GOOGL, NOW, IBM, CMG, ALK, MOH, URI
- Thursday:AAL, BX, NOK, DOW, LUV, FLEX, UNP, NDAQ, KDB, HON, INTC, NEM, DECK, BYD
- Friday:CNC, HCA, AN, CHTR, TNET, SAIA
Fed Watch:
Not much on the calendar but Chair Powell will give opening remarks at a banking conference. The committee is in blackout period as they prepare for their next meeting coming up soon.
Stocks to Watch
Tesla – Earnings out this week for the big EV car maker as estimates are all over the place. Did Elon come back soon enough to make a difference and will he come up with some surprises?
Google – Also reporting this week, the big search company is working to diversify their revenues enough to show regulators there is no need to break up the company due to antitrust issues. The stock has been a poor performer and may start to catch up soon.
Volatility – We continue to live with a low VIX and that means the market is highly complacent. With all the worries in the world this makes the market that much more vulnerable.
