The Fuse
Equity futures were in deep red overnight night but have battled back to only show a slight loss. Volatility is high as we approach the end of the quarter with rebalancing of portfolios and allocations. Further, with a strong quarter many fund managers want to get paid and will use an opportunity to keep markets propped up.
Interest Rates are slightly lower as the long end of the yield curve is under a bit of pressure. We’ll have some big bond auctions later today which may influence price, but mostly these auctions have been taken well with plenty of bid. Today’s release of GDP 3rd look at Q1 was positive and helped bonds catch a bid.
The trade deficit widened in May but bonds still remain well bid. Jobless claims hit their highest level since September. Gold is rising sharply this morning, up nearly 1% as crude also bursts higher. Stoxx in Europe were slightly higher, Hang Seng was down sharply, about 2% while Shanghai also fell as did the Nikkei. China’s markets have been reeling.
Earnings were good but not great from Micron, so it is down a bit this morning. Walgreens delivered another bad quarter, tonight we’ll hear from Nike.
The action was poor as the markets remain stuck in a range. With only a few catalysts to drive stocks they seem to be stuck in the mud. The SPY has a 5 point range so far this week, that is not even 1% for the past three days. The lack of volatility is concerning but won’t matter until buyers of protection decide to show up. End of the month window dressing is here these next two days.
Breadth was bad again but not horrible Wednesday. It seems this disease persists day after day, but when only a few stocks seem to push the markets higher it becomes a head scratcher. Eventually though the weight of down issues will matter and often happens without warning. For now, money just rotates from big to small back to big again. That game of musical chairs is fun until the music stops.
Volume trends remain lethargic, turnover was poor Wednesday as there is some disinterest in the stock market. That’s fine for now as we have weakness in sectors, which tells us the selling doe not have much conviction.
Same message as yesterday: Is the support going to be tested even lower? It’s possible, but the bulls are just not letting go. However, some sectors like semis have shown weakness recently, same as housing and some retail. We still think a 2-5% correction is coming and would be welcomed by long term investors to reset the markets. As it is, there is quite a bit of giddiness and froth, VIX still very low.
The Internals
What’s it mean?
Internals were mixed once again, that has been the case so far this week. VOLD was promising but the ADD better, though it was negative. Ticks remain red so that is on the bearish side, volatility remains lower but so do the put/calls, which may now well be on a buy signal. More excitement tomorrow with quarter end.
The Dynamite
Economic Data:
- Thursday:jobless claims, adv retail/wholesale inventories, durable goods, GDP (third estimate), pending home sales
- Friday:May income/spending, PCE, Michigan sentiment
Earnings this week:
- Thursday:MKC, LIN, NKE, AYI, WBA
- Friday:
Fed Watch:
Fed speak was out in force last week as the Fed governors pretty much stuck to their statement the prior week. It’ll be a month before the next meeting so plenty of data to divulge. We’ll have two speakers this Monday, three on Tuesday and another on Friday. Most likely the recent data will not yet convince the committee to cut, though markets are basically predicting a cut in September then one in December.
Stocks to Watch
Housing – Some pretty lousy home data last week and a bunch more coming this week. Could this be the tree that falls to start an economic slowdown? It could be, but if rates decline even more look for another cycle up to begin.
Sentiment – Consumer sentiment and Michigan sentiment will be released this week, and most consumers have been downright negative on the economy. Perhaps it is just a hunch or maybe just their situation, but if sentiment continues to deteriorate that may have consequences for equity and other markets.
Quarter – It has been a strong quarter for stocks even with a poor April. I’m sure the bulls would like to see a strong finish into Friday’s close. SPX 500 is up nearly 17% for 2024 so far, an amazing accomplishment following a strong 2023.
