The Fuse
Equity futures are getting blasted this morning, down better than 1% on heavy turnover as word of more/higher tariffs stifle the markets. There is no telling how the market will respond after Wednesday when the first tariffs take effect. Today is the last trading day of March and the first quarter, it could be a volatile month.
Interest Rates are sharply lower this morning as the equity market freeze is bringing money to fixed income in a risk off trading environment. Interestingly, the 2 yr is falling as well along with a bid in fed futures, which means a better chance of cuts (based on this estimate). That still seems a bit to presumptuous, but the market will find out later.
Stocks are falling sharply after a miserable end to the week. Europe was pasted, down 1.1% on heavy volume led by drops in France and Germany. The dollar fell modestly, gold is ripping higher as is silver, crude oil up modestly. German 10 yr bund yields fell 5 bps while US treasury 10 yr yields dropped 4bps, very big moves overnight. Stocks in Asia were lower, the Nikkei down hard, over 4% while China’s Shanghai fell .5% and Hong Kong off.9%.
Earnings are sparse again this week but we’ll get a brief preview of business from the first quarter. We’ll hear from PVH, NCNO, RH, Guess, Blackberry, Acuity Brands and some smaller companies. Big banks will be out next week.
Stocks were just pasted from the start of trading Friday as worries over tariffs and high inflation are top of mind. The PCE for February came in hotter than expected and with some short term price hikes expected from tariffs (which are set to start Wednesday), there is plenty to fret about. The rejection of the recent high at 5,785 serves as strong resistance but no doubt lower levels are on the agenda.
Horrible breadth for a third straight session as this indicator is now on a sell signal. It is hard to believe why this indicator flips so much between bull/bear but we simply observe this and move accordingly. Strong breadth is a signal the market is healthy but the opposite is true as well. Oscillators are back in negative territory while new lows are starting to expand.
Volume prints have been weaker of late but still concentrated with plenty of selling and a commitment to further selling. The pace of turnover has been brisk and as you can see from the internals below it is like a freight train. On Balance volume is weak as well and signals big money is moving out.
Support levels are seen below, the Russell 2K (IWM) could make a run at last April’s lows, and that would fortify the bearish trend in small caps.
If rates climb that is likely the case. Nasdaq is sitting right above the 19,200 support level, the SPX 500 looking to test the 5,500 once again but that would be a pretty large move down, but if it holds or of the market is oversold at that point it could be the time to dip in a toe.
The Internals
What’s it mean?
Just a miserable day for the bulls following a hotter than expected PCE number for February. It seemed to be taken lightly at the start but the selling hit from the beginning of the day and never let up. The VOLD and ADD tell the story here with weakness and closing at their lows of the day. Breadth was very poor and is on a sell signal. Check out the ticks, all red all day long with heavy sell programs. Put/calls were on the rise as was the VIX, which is making a run at $30 once again. Just extreme bearish action.
The Dynamite
Economic Data:
- Monday:Chicago PMI
- Tuesday:ISM, construction spending, JOLTS, auto sales, Fed Pres Barkin
- Wednesday:ADP, factory orders, Fed Governor Kugler
- Thursday:Jobless claims, trade deficit, services PMI, ISM, two fed speakers
- Friday:non farm payroll, Chair Powell, Govs Barr and Waller
Earnings this week:
- Monday:PVH, RCAT, GRRR, BLNX
- Tuesday:NCNO, SPWH
- Wednesday:BB, ANGO, CGNT, RH, PENG, BSET, CLIR, FC, RGP
- Thursday:CAG, GES, SLP, AYI, LNN, KNXT, LW, MSM
- Friday:N/A
Fed Watch:
After last week’s rather hot inflation number we have quite a few fed speakers coming out with speeches this week, including Chair Powell on Friday. That will be following the jobs report, which is going to be another pivotal data piece. Jobs have been strong for a few years but if they start to show cracks there may be action needed by the Fed down the road, but not right away. Inflation in the interim remains a problem and may only get worse with tariffs.
Stocks to Watch
Volatility – We again watch the VIX as it is now above all of the futures contracts. That condition does not often last for too long before easing up, but the uncertainty abound is making investors quite worried and nervous.
End of Quarter – Monday is the last trading day of the first quarter and it has been awful. The worst performance for the SPX 500 in about three years, stocks are reeling just before the start of earnings season. It is foolish to be bearish before earnings begin but hard at this time to be bullish, too.
Gold – Hitting a new all-time high this week was impressive, what is the message from the metal? Certainly there is something there, other commodities have shown good strength as well including copper, which hit all-time highs last week before the tariffs start to hit.
