The Fuse
Futures are soft early, extending the drop in the markets that started last Friday. So far three down sessions in a row that followed six up sessions. We are in a seasonally weak period for the markets, and Chair Powell speaks to the Senate later this morning in day two of testimony.
Interest Rates are on the rise again as global rates are also moving up. Fed futures are also higher with an implied odds of 75% for a rate hike in July.
The Bank of England surprised by raising rates 50bps this morning, while other central banks also raised rates. Yesterday, Chair Powell stated the Fed was not done raising rates, the market seems to be fighting his words.
Strong earnings and guidance this morning from Darden Restaurants and Accenture, but they are heading south as the market is under mild distribution.
Chair Jay Powell testified in front of Congress and reiterated the committee’s policy stance. He reflected on the meeting and stated under no uncertain terms that the Fed has more hiking to do. Fed Funds Futures rose up to a 71% chance of a hike at the July meeting.
Breadth on the Nasdaq was simply awful but the NYSE actually finished positive, in a bit of a surprise. No matter, this indicator is reflecting negative sentiment now, and during a seasonally weak period. Look for this poor breadth to line up with recently bad price action.
A distribution day for the indices as volume was higher than the prior session. What’s it mean? Simply put, mild distribution signals institutional selling. Several of these in a series would set up for a test of much lower support. Volume trends in the IWM however have been somewhat positive.
Selling all day long even as the market tried to rally late in the day. 4,400 on the SPX is proving a tough nut to crack. As of now, another day down likely sets up a test of 4,300 sooner rather than later.
The Internals
What’s it mean?
Another down session with the internals rather mixed. The VOLD straight down while the put/call was rather elevated, but the VIX was also lower which has us scratching our heads. Of course, July futures are now the front month and they are selling at a whopping premium to the VIX cash. TRIN is still rather high after Tuesday spiked session.
The Dynamite
Economic Data:
- Thursday: Jobless claims, Leading indicators, Existing Home Sales
- Friday: June Flash PMI’s
Earnings this week:
- Thursday: ACN, DRI, SWBI
- Friday: KMX
Fed Watch:
A slew of Fed speakers out this week talking about the economy, inflation and their position on rates. Jay Powell also gives Senate testimony today, which could be market-moving. With the last meeting just a week ago, I don’t believe there will be anything too earth shattering to shake up the markets.
Stocks to Watch
VIX – With a big drop below 15% last week we’ll see if some of the is burned of with a rise in volatility.
Housing – Some strong results from Lennar and others, we may see a surge in housing data this week as interest rates make their way lower.
Retail – Not much on the news front for retail but this group is due for some outperformance in the summer, we’ll see how this plays out.