The Fuse
This morning equity futures are up modestly as traders await Chair Powell’s testimony and important inflation numbers later in the week. The bi-annual testimony by Powell may clear up some uncertainties about monetary policy and give some clarity about the economy.
Interest Rates are modestly higher today but the trend is clearly down with long term rates. In fact, the 10 year yield was slammed late last week and is looking to test the 4.2% area soon. Fed futures are strongly looking for two rate cuts in 2024, likely the first one coming in September.
French elections over the weekend have that stock index in a bit of volatility as are the bonds. Across Europe the STOXX was flat while stocks in Asia were down moderately. Gold is getting hammered, down about .7% as is crude oil (down 0.8%). The German 10 year bund yield was down 4 bps. The second week of July trading is underway and could signal more gains to come. Russell 2K is starting up this morning, a couple of confirmation days following would be put the IWM on solid footing.
Earnings season gets underway this week with banks on Friday, Delta and Pepsi Thursday am and a few early reports. The one question we may have is have stocks run ahead of good earnings? We’ll soon find out.
Not much on the events front but we do have stock once again at all time highs. Can this be sustained for much longer? Hard to say, but we are not predicting these things. We prefer to just let the market tell us what to do, we’ll worry about for ‘how long’ if/when the market decides to correct.
Breadth was poor most of the session and if i were to tell you it finished near the highs of the day, you might argue that point with me. But the results were plain to see, 15-12 negative but the oscillators finished in the green. That is no saving grace, the market seems to be dominated by only a few names at this time. Yet, new highs are again starting to expand, which means the breadth might improve. Cumulative breadth has been much better of late.
With Wednesday’s half trading session having an accumulation day (higher volume) was really not much of a challenge. Better turnover across the board (save for the Industrials) as we saw new highs printed. Better volume tends to come in clusters if the bull market rally stays in tact. We’ll see if that continues this week.
Strong support for the SPX 500 at 5,400 and 5,375, but being about 170-200 points above that level it doesn’t appear to be much of a threat. The 10 ma at 5,450 and climbing each day is a bit more relevant. As for Nasdaq, 20K is breakout point but with strong price action the last three sessions and an overbought condition it is a tough call to make. However, we expect a test of lower levels at some point.
The Internals
What’s it mean?
Internals were not fully reflecting the action of the market. What else is new? That has been the case on most days for weeks, and frankly that will eventually end badly. For now, we simply observe. VOLD was stagnant as was the ADD, ticks were strong while volatility (VIX) remains muted. Put/calls are racing lower which puts this indicator on a buy signal..
The Dynamite
Economic Data:
- Monday:Consumer Inflation expectations, consumer credit
- Tuesday:small biz optimism, Chair Powell testimony
- Wednesday:Chair Powell testimony (day 2), wholesale inventories
- Thursday:CPI, jobless claims
- Friday:PPI, Michigan sentiment
Earnings this week:
- Monday:GBX
- Tuesday:HELE
- Wednesday:PSMT, WDFC
- Thursday:DAL, PEP, CTAS, CAG, PGR
- Friday:JPM, BK, C, FAST, WFC
Fed Watch:
Two big important days this week with Chair Powell’s bi-annual testimony in front of Congress and the Senate. The Chairman is likely to reiterate the same words as the last statement and last week, not willing to share if/when the committee is willing to cut rates. He is likely to talk positively about jobs and lower inflation. We’ll see how the markets respond.
Stocks to Watch
Fed Funds Futures – Market players are eager to get the Fed cutting rates. Chair Powell is testifying in Congress this week and that might give us some clues as to policy. More importantly, inflation reports this week will give us more information.
Interest Rates – Without much fanfare the 10 year yield has fallen sharply from 4.5% to 4.23%. That is a full rate cut and the futures have responded in kind. The 4.2% level is solid support from last month,, will we break it? If so, small caps will lead the charge.
Banks – Large banks like JPM, WFC will report this week. They have already had a big run so perhaps this is a sell on the news event.
More banks report in the coming week.
