The Fuse
Equity futures are moving slowly this morning, the range is fairly narrow. That is to be expected with volatility having crashed lower this week. The VIX is sitting at 17%, the lowest level in a month and threatening to break through to February levels. Now that most of the big news is out, the market is not being surprised by what is in front of it (for now).
Interest Rates are mostly flat this am after a nice drop lower Tuesday on the long end. High yield remains strong and bold, new highs for the HYG and JNK etf. Spreads are tight. Fed futures are not pricing in a cut for July though many think that is a good possibility, yet September offers the best odds on futures markets with an 86% probability of one cut this year. Now they are pricing in 2 1/2 cuts in 2025, only 4 meetings left this year.
Stocks in Europe climbed slightly, up .2% on the STOXX led by France and Germany’s modest gains. FTSE added .3%, the dollar was flat while gold and silver were barely changed. Crude oil is up for the first time this week, up nearly 1%. German 10 yr bund yields fell 3bps, US 10 yr treasury yields fell 1bp, while in Asia stocks were higher – Japan up .4%, Hong Kong up a robust 1.5% and Shanghai climbed 1%.
Earnings yesterday am from Carnival were fantastic, beat on top/bottom line and boosted guidance. The CEO said the consumer is spending, something that had market watchers concerned they were slowing down. FedEx however offered poor guidance, this morning General Mills, Paychex and Winnebago. Tonight’s big earnings are Micron and Jefferies.
That’s what I call FOLLOWTHROUGH! Stocks were sharply higher at the open and never let up, closing near the highs of the session. Word of a ceasefire in the Middle East lit a fuse under the bulls’ feet and they went to work at the opening bell. Stocks were pushed higher from strength overseas as well, but now in the short term we are a bit overbought, but a pullback might not happen until a new high is accomplished, perhaps within days.
Strong breadth again, nearly 3-1 positive with broad strength across many sectors. It was nice to see the small caps participating again, which helped to broaden out the rally yesterday. Oscillators went positive again and are back on buy signals, we’ll need a confirmation day of course but now the markets are overbought in the short term. Does that mean a down session has to happen? Of course not, but it will. New highs expanded again.
Decent turnover across the board as some heavy buy programs were hitting end of day. That is encouraging for the rally to continue, if you’re bullish you want to see high quality days like this advance on strong turnover. That tells us big money is supporting prices at these levels and that the next pullback could be finished just below the starting point today.
Now the SPX 500 and Nasdaq are within spitting distance of new highs. That might make the bulls happy but remember the bears will seek their opportunity with profit-takers. Make no mistake, this is very bullish and could continue on into July, but there will be some signs of exhaustion and sellers will come out. End of month is coming up and that means more turnover and wild trading like yesterday. If new highs hit there will be a chance for more upside beyond.
The Internals
What’s it mean?
What a rout for the bulls. Just look the TICKS and you’ll see what I mean, green all over the place and nary a red arrow. That is some strength, obviously driven by the overnight news. But the VIX also was creamed, and the VOLD pushed to the highs of the day, even better than Monday. That was some strength with high volume. Put/calls continue to fall, bullish again for the markets. Overbought here, so caution is warranted.
The Dynamite
Economic Data:
- Tuesday:
- Wednesday:
- Thursday:Trade, retail and wholesale inventories, jobless claims, GDP 2nd revision, durable goods, pending home sales, Fedspeak
- Friday:Consumer sentiment, income/spending, PCE
Earnings this week:
- Tuesday:CCL, SNX, FDX, BB, WOR, AVAV, ATEX
- Wednesday:GIS, PAYX, DAKT, WGO, NG, MU, JEF, WS, FUL SCS
- Thursday:AYI, WBA, LNN, MKC, HIVE, NKE, CNXC, AOUT
- Friday:APOG
Fed Watch:
The Fed came and went last week and kept monetary policy in place. They continue to believe growth is still delivering and the labor market remains strong, but there are risks in lowering rates if tariffs produce some inflation. Their concerns are warranted, but the data has improved. Chair Powell testifies in front of Congress this week.
Stocks to Watch
Energy – A big spurt in oil prices this week as the conflict in the Middle East continues to fester. As the worries mount we will continue to see a premium in crude which eventually trickles down to the consumer level. That’s right, higher inflation.
Russell 2K – The small cap index recently made a gallant run to the 200 day moving average and backed away, now it is correcting off a big move up. We’ll be watching this index closely as the expansion of small caps means strong breadth figures are likely, which the bulls would like to see.
Volatility – With the uncertainties abound it makes sense investors/traders would buy some protection. But we are right up against the end of the month/quarter and that may be where buyers pick up stocks and ignore the geopolitical issues. A volatility drop would confirm that.
