The Fuse
Equity futures are bouncing around this morning, mostly mixed after volatile overnight session. The futures fell about 40 handles at one point, right near the lows from Wednesday but have since rebounded. February PPI will be released before the open today.
Interest Rates are rising again this am, bonds are selling off one more time as bond volatility remains elevated. Fed funds futures still looking for an aggressive Fed later in the year, but I just don’t see it happening if the data does not turn quickly. The economy remains in a good place even if it appears to be slowing down a bit.
Stocks in Europe fell .2% as they could not keep up with the US markets. France and Germany fell the most, the US dollar is flat. Crude oil is off by about .5% while gold and silver are creeping higher. The yellow metal is just off all-time highs. German 10 yr bund yields rose by 1bp as did US 10 yr treasury yields. Over in Asia stocks were lower, Japan down a small fraction while Hong Kong and Shanghai lost .6% and .4% respectively.
Earnings last night from Adobe were strong but guidance was weak, the CEO said the first quarter is off to a slow start. A huge miss by Dollar General this am but they have plans to build new stores. Tonight we’ll hear from Ulta, DocuSign and a few others.
At least the market finished higher, but that was the only good thing to say about it. We all understand that markets don’t go down forever, and eventually there was going to be a relief rally. But when the CPI was announced the SPX 500 futures ripped higher, nearly by 2% but that was an invitation to sell. A marked change from prior pops to the upside. This bear market behavior.
Breadth was positive, first time in several days as this indicator remains challenged. We saw some wide spreads between up/down early in the session but that deteriorated quickly. No question this indicator is telling us something worse is happening down the road. Oscillators remains bearish, they are still quite negative. New lows are still beating new highs, at best this is neutral.
When the markets rally as they did Wednesday you would like to see an expansion of volume. That sets up for more upside, this is called an accumulation day. When stocks rise on lower volume it indicates less conviction from the buyers. Now, there are certain times of the month when cash flows are strong (beginning and end) and we often see bigger turnover. However, while this market tries to deal with uncertainties we can no doubt feel some hesitancy.
Another probe lower on Wednesday but the lows stopped short of Tuesday’s reaction low. The Nasdaq had a higher high, higher low but the other indices were just inside days. If Tuesday was a good low then we should see a few days up and then retesting those lows. As of now, the indices are trying to carve out a bottom, often a delicate process that is best to be left alone.
The Internals
What’s it mean?
Let’s just call it for what it is: a pathetic relief rally. Am I being picky? Yes, because the market is not being serious about upside. Therefore, we have to expect more evidence. The internals were positive, but that is the only good thing to say about it. VIX did decline after the news was released but after a scorching run in pre-market the bulls failed to show up. That’s telling. Ticks were scattered but mostly green, yet momentum was missing all session.
The Dynamite
Economic Data:
- Thursday:PPI, jobless claims
- Friday:consumer sentiment
Earnings this week:
- Thursday:DG, WB, QBTS, BLDP, VFF, DOCU, ULTA, SMTC, PTMN, RBRK, SOL
- Friday:GOGO, HSON, AIRS, LI
Fed Watch:
No fed speak this week but the committee will be watching the inflation readings closely. Recall the recent miss in PCE, the reading the Fed pays very close attention to. Further, it seems job growth is strong enough to handle the current 4.25% fed funds rate for some time, that will discourage many who are looking for cuts in 2025. It just doesn’t seem in the cards this year.
Stocks to Watch
Volatility – The VIX rose up sharply and remains stubbornly high. There is the notion that high volatility readings can continue until a very large selloff happens. That is likely the case, and the longer we go without it the more pain will be delivered.
Mag 7 – This group of mega tech names has been very weak since the start if February. Can they turn it around? The correction in this group has been deep but so far buyers are not sniffing around just yet.
Inflation – More critical data with the release of the CPI and PPI for February. These numbers have been relatively hot and showing much stickier inflation than ever, so we continue to wait for more inflation of prices dropping.
