The Fuse
Equity futures are hanging in there this morning but it is still mixed with Dow Industrials down slightly but Nasdaq up modestly with the. ES futures. All quiet until the flash PMI hits later this morning.
Interest Rates are up again the long end of the curve, there is just no breaking this fear of holding bonds. Perhaps this is something to do with last week’s downgrade. Regardless, the 10 yr remains hot and is approaching 4.6%, the 30 year well above 5% now. Fed futures still pricing in a cut for September then one for December, yet inflation trends continue to point higher. Junk yields have started to widen as well, something to watch closely.
Stocks were lower in Europe as the STOXX index fell .6% on heavier volume. Helping to drive it lower were France and Germany, in England stocks were down a similar amount. The dollar index rose .1%, gold is down nearly 1% while crude oil is off 2%. German 10 yr bund yields fell 1bp but US 10 yr treasury yields were down 3bps. In Asian markets Japan fell in sympathy with the US, down .8% with Hong Kong down 1.4% and Shanghai down slightly.
Earnings from Snowflake were again very strong against estimates, this stock is moving sharply higher in the am. Also good reading from Zoom and boosted guidance, that stock is modestly higher. This morning very good report from Advanced Auto Parts. Tonight we hear from Deckers, Intuit, AutoDesk, Ross and Workday.
It had to happen. Stocks were ready to fall and they did that Wednesday with vigor. But it wasn’t until a 2pm poor treasury auction that got the sellers motivated. That auction was horrendous, signaling lack of interest in buying US treasury bonds. That pushed up yields and with that toxic move the stock market was buried. After a nice bullish run perhaps this is the breath that needs to be taken.
Breadth remains on a buy signal even after yesterday’s pounding, but another day like that is going to trigger more selling. Oscillators are now negative for the first time since early April. That’s not horrible yet but is certainly setting up for more downside action. New highs are starting to fade, less than zero were printed yesterday.
Volume certainly has been retreating of late but some heavy turnover following that poor treasury auction signaled some sellers are getting motivated. We saw the turnover increase late in the day as the selling intensified, leaving the markets with a fat distribution day. If these start to cluster it means the rally to these recent levels is in jeopardy.
A tough day for the bulls in what started off very positively. Stocks look rather tired here and could pull back a bit more towards good support at 5,700. That level could be tested quickly if the 5,850 level is not exceeded in a couple of day. Reminder, a three-day holiday often sees volatility recede and that may happen over the next couple of trading sessions.
The Internals
What’s it mean?
A miserable ending to a promising start. Internals just were hammered yesterday as we saw weakness in the ADD and VOLD, not seen this badly for several days. Put/calls are on the rise again, the VIX soared and finished near its highs while the ADSPD printed a trend down day. Ticks were solid red on what was a risk-off day. We’ll see if there is followthrough.
The Dynamite
Economic Data:
- Thursday:Jobless claims, pmi, home sales, NY Fed Williams
- Friday:New home sales, fed speak
Earnings this week:
- Thursday:ADI, BJ, AAP, RL, TD, DECK, ADSK, INTU, ROST, WDAY, CPORT, STEP
- Friday:
Fed Watch:
It’s going to be a busy week of fed speakers, in fact everyday someone will be out with speeches or Q/A. We might here some comments about the recent debt downgrade and that won’t be positive. Yet, with better inflation readings this past week there is some indication the committee may start talking about rate cuts and when those might happen.
Stocks to Watch
Nasdaq – As this tech index leads the way, markets have been looking for some leadership and finally got it.
The Mag 7 names have come alive again and while they are not at all time highs yet, that could be coming soon.
Interest Rates – A late downgrade by Moody’s of US debt may cause some heavy selling in bonds this week.
That may just be an initial response as bond buyers still picked up fixed income when other firms had downgraded the debt prior.
Tariffs and Trade – The news of a potential deal between US/China sparked a nice rally on Wall Street but it was more relief than anything. We don’t expect too much more until the negotiations get underway.
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