The Fuse
This morning futures are coming under pressure as some selling from overnight flows into the US markets. The SPX 500 and Nasdaq have both had a strong week of performance and are due for a bit of a pullback. Just how far depends on the lows hit earlier in the week.
Interest Rates are dropping as bond buyers are back in adding fixed income products. The 2 year yield is off 2bps and down to 4.68%, the 10 year is now comfortably below 4.25%. Below 4.2% and the market will start pricing in those rate cuts sooner rather than later. Mike Darda from MKM believes the market may be getting ahead of a cautious Fed.
European stocks fell sharply especially in France, the CAC 40 is off by 5% this week. The STOXX 600 is on track for its worst week in eight months. The yen was weaker vs the dollar after Bank of Japan decided to leave policy unchanged and reduce their bond buying program. Oil is climbing, up abot .5% while gold is rising as well, up more than 1%.
Earnings from Adobe out last night were a relief after two poor quarters. The stock is rising sharply on the back of better guidance. RH is down hard after a solid miss.
The one-two punch of the CPI and PPI just may have been the knockout combination to put the bears down. We saw bullish action after the release of the PPI, which came in negative on the headline but more importantly flat on the core. That puts the 3 month average on a downward trajectory, which means the Fed can start considering rate cuts, if not already talking about it.
It was a strange day, breadth was noticeably absent, the IWM negative most of the session even as yields fell. Perhaps the rotation towards large cap and tech is more profound than imagined. Oscillators remain negative, new lows are expanding again (but not on a sell signal yet). Price action matters most, but this divergence cannot survive too much longer. If the bulls remain in control, breadth needs to improve.
Volume was moderate yesterday, a summer trading day with stops being taken out up and down the market. That can easily be done when volatility is low, it’s all about shaking things up and creating some angst. The bulls remain in control, Wednesday strong turnover session was followed through by the SPX 500 and Nasdaq. Industrials and small caps are struggling here.
More new highs for the Nasdaq and SPX 500 but we did see an attempt at a pullback. Futures did actually fall a bit but rallied after some levels held. We still see the recent SPX lows around 5,330 as good support if a more pronounced selloff occurs. At the moment, Nasdaq could fall to 19K and still be in an uptrend. Industrials still has 38K while the IWM is clinging to 200 as support.
The Internals
What’s it mean?
Internals got whacked hard but that did not seem to matter to the price action. VOLD was hit hard, meaning the volume did not support the advancers. We see ADD down hard and ticks with a dominant red. That spells trouble soon. VIX continued to decline, put/call rose up a bit but the internals tell a bearish picture. Will they turn today or into the short trading week ahead?
The Dynamite
Earnings this week:
- Friday:N/A
Economic Data:
- Friday:Consumer Sentiment, Import/Export prices
Fed Watch:
It’s a big week for the Federal Reserve, which has another big meeting coming up. This two day meeting will likely result in no action on the fed funds rate, but a new set of projections will be released. Inflation remains sticky and a problem to the committee, if they see more challenges ahead they will simply reiterate ‘higher for longer’ until conditions improve.
Stocks to Watch
Apple – Their annual Worldwide Developers Conference (WWDC) is this week and many believe they will spend a generous amount of time and capital on AI functions. Many consumers are waiting on new iPhones in order to move on the new releases, which could come as soon as 2025. This conference is one that could start a gamechange for Apple.
NVIDIA – After reaching new heights last week, the most valuable company in the world, NVIDIA’s stock will split 10-1 this week.
It’ll be interesting how it trades, will more sellers show up cutting their positions? Probably so, but the stock won’t move nearly as much.
Inflation – CPI and PPI readings will be out later this week. These will be the two main economic data reports delivered. All eyes on the CPI as economists expect very little change in May (1.7% annualize for the month/month).
