The Fuse
Equity futures are taking it on the chin this morning as volatility is rising. The VIX is now above 14% in the pre-market, perhaps signaling another risk-off day. This is one to be be very careful, taking risk down and using put protection.
Interest Rates are sliding upwards again as the German 10 year bund is higher by 4 bps. The short end of the curve remains steady but as the longer end of the curve floats higher the yield curve flattens out, which tells us how serious the Fed is about ‘higher for longer’. Only about a 55% chance of a cut at the September meeting, still 20% chance of no hike in 2024 at all.
Stocks overseas were lower overnight, the Euro Stoxx index off by .3% while Asia was mixed. Japan was off nearly 1%, Hang Seng down 1.6% but Shanghai was flat. Crude oil is on the move, higher as WTIC spot is back above 80 per barrel. Gold is shedding some recent gains as is silver. As we look to close the books on a very positive month we may see some late buying in the week to boost portfolios. NVIDIA is ripping higher once again. An important Beige Book Report from the Fed will be released today.
Earnings out from restaurant Cava last night were strong as they added positive guidance. The stock is down modestly today but did run hard over the last six weeks. Today is a big earnings release, this morning strong earnings from Dicks Sporting goods and Abercrombie, so-so numbers from AAP and a beat by Chewy. Tonight we’ll hear from Dow component Salesforce, and also Nutanix, Okta and HP.
That was a strong rally Friday and while turnover was poor, that positive was that Thursday’s turnaround session (down) was not continued. Why does it matter? As the markets were clearly overbought earlier in the week, it became vulnerable to selling pressure, investors/traders willing to take chips off the table at all time highs. With a strong money already accounted for and news out from NVIDIA, that left the market vulnerable.
Breadth was poor all session Tuesday, buyers just were not in the mood to add stocks yesterday. At one point the A/D line was moderate, but after a poor bond auction the sellers came out of the woodwork and pushed markets lower, remaining on the sidelines most of the day. Some bargain hunters stepped up but breadth still finished poor, 2-1 negative. Maybe a turnaround Wednesday or window dressing in front of month end.
It’s starting to look a lot like summer! Volume was putrid yesterday, they scraped the bottom of the barrel for any turnover they could find. Without NVIDIA there would be much less turnover, but then we are at the end of a positive month (May). No surprise if some sellers come out and book profits, but a down session on lower volume such as we had in the Industrials yesterday is not really bad news. More down days would be problematic.
A mixed market as support held up, the Nasdaq is pushing again towards 19K. The industrials had a rough session but closed off its lows of the day. Support here at 38.5K, the SPX 500 has support right here at 5,300 (tepid) with better support around 5,220 and then 5,180 or so.
The Internals
What’s it mean?
The internals show how difficult a day it was to trade. The VOLD barely budged, the ADD, started high and fell all session long, telling us buyers just were in the mood to add. Notice the redness on the ticks, massive sell programs all day long and no buyers to be found. VIX did spike up and paid back the drop in volatility Friday, but that may be over for now. End of month is here, we could see some end of month buying for a few days.
The Dynamite
Economic Data:
- Wednesday:Fed’s Beige book
- Thursday:GDP second estimate, Q1/2024, jobless claims, adv retail inventories
- Friday:PCE price index for April, Chicago PMI
Earnings this week:
- Wednesday:ANF, CHWY, DKS, AEO, A, HPQ, CRM, NTNX, OKTA, PSTG
- Thursday:KSS, FL, DG, BBY, BIRK, BURL, COST, DELL, ZS, MRVL, ULTA, ZS, NTAP, VEEV
- Friday:GCO
Fed Watch:
Several Fed speakers out this week talking about monetary policy and the economy. Most of them are on Tuesday, it seems the committee is anxious about the data being more ‘correct’, since many would like to be in rate cutting mode. However, it’s just too soon for it to happen. We may have some clues this week, the next meeting comes in three weeks. Goldman Sachs believes the next rate move is a cut but not until September at the earliest.
Stocks to Watch
Inflation – Friday is a big report with the PCE coming out before the open. This is a favored report of the Fed and will give us a glimpse on how prices fell or rose in April. The CPI said prices were stabilizing, we’ll see if this report confirms it.
Gold – The metal made new highs this past week but backed off sharply, as did silver. This could be a week of tight consolidation here, perhaps a hint at the next breakout move.
Salesforce – This name reports earnings this week and if recent tech earnings are any clue, this one should be pretty strong. However, some of its competitors like Datadog and Workday fell flat on their faces. Last quarter the company rocked a big number and set record again, if that happens one more time this stock is easily above $300.
