The Fuse
Equity futures are getting blasted this morning following the missed earnings report from Salesforce. The Industrials are taking the biggest hit though, down more than 300 points. That index is now down 2000 point in just a couple of weeks after closing above 40K for the first time ever, or roughly 5%. NY Fed President Williams speaks later today as well Dallas Fed President Lori Logan, talking inflation and monetary conditions.
Interest Rates have been pushing ever so higher this week but are backing off a bit this morning. Tomorrow is the end of May and we are likely to see a bit of profit taking place. Bonds are only modestly higher on the month, losing some hard-fought ground in a few days. Fed futures still portray a ‘higher for longer’, in fact only about a 55% chance of a cut at the September meeting.
Gold futures are down slightly as is crude, trading below $80 per barrel. In Europe, the STOXX 600 fell slightly, the dollar is also down a bit. Stocks in Asia were down across the board, more than 1.3% in Japan and China. Nelson Peltz said ‘uncle’ and decided to unload his position in Disney.
Global equities are headed for their worst week since mid-April. Wednesday’s bond auction was tepid, heightening worries about funding the US deficit amid a rising rate environment.
Earnings out last night were mixed, big software name Salesforce missed revenue and guided lower, that stock is getting pounded today. Strong earnings from Okta though, and this morning Kohl’s disppointed while strong numbers from Burlington, Birkenstock and Foot Locker. Tonight we hear from Costco, Dell, Marvell and Ulta along with Zscaler.
Traders and investors were in a sour mood all day Wednesday as the unwinding of low volatility continued. Without a catalyst to drive markets higher other than sparse earnings and the calendar (end of the month) it seems as if it was time to take some chips off the table after this fabulous month of May. With two sessions left the equity markets are sporting a strong month following a weak April, perhaps the bulls are back on track. We’ll know more in June.
Nearly 6-1 negative breadth has this indicator back on a sell signal. Remember, the cumulative breadth indicator recently reached a new high, and then the markets ticked up there, too. But lately the breadth has been poor and that becomes a leading indicator for downside. Is the rally over?
It’s too soon to tell but certainly the oscillators, firmly negative are pointing towards that conclusion.
Heavy volume selling to start the day combined with heavy sell programs all session long told the bulls it was not going to be their day. Certainly in May the dominant move has been up and on strong turnover, but those tables have turned recently. We should see heavier volume later in the week with end of month coming in, and then perhaps early next week as the new month gets underway.
We have to conclude 5,300 is just not good support, having broken that level hard on three occasions. We have some good support at 5,250 and then 5,050 or so. The industrials really took it on the chin yesterday, down more than 1500 points in seven sessions. That is nearly 4% correction, quite a bit in that short period of time. 38,225 is next layer of support, another 220 points lower, and after Salesforce’s miss that might happen.
The Internals
What’s it mean?
No two ways about it, this was simply an ugly Wednesday session. The internals show the market was routed by the bears, and they may not be finished yet. Certainly the VOLD speaks, and loudly. Another poor session, closing near the lows is going to magnify the losses. ADSPD showed a rare trend down day, ticks were bright red all session long, the VIX closed near the highs of the day. End of month is here, if that is any consolation. Perhaps a bit of window dressing, but any buying is likely to be sold immediately.
The Dynamite
Economic Data:
- Thursday:GDP second estimate, Q1/2024, jobless claims, adv retail inventories
- Friday:PCE price index for April, Chicago PMI
Earnings this week:
- 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.
