The Fuse
Stock futures are modestly soft this morning after a rather mild overnight session. This is the last trading day of May which has turned into a very strong month of performance. If June follows through more upside can be seen.
Interest Rates headed down yesterday and that would be good news for markets especially the small caps. Recall this group does poorly if interest rates are on the rise. Bond investors are still quite nervous here but at some point that fear is going to break. High yield spreads remain very tight as junk bonds are performing well, in alignment with equities. Inflation risks remain elevated.
In Europe STOXX was up slightly, paced higher by Germany and France. The FTSE higher by .4%. The dollar rose up .2% while gold was off nearly 1% on heavier trade. Silver was off but crude oil climbed 1%. German 10 yr bund yields were down 1bp, US treasury 10 yr yields fell the same. In Asia stocks were lower, Nikkei down 1.2% with Hong Kong off 1.6%, Shanghai lower by .5%.
Earnings last night from Dell were terrific as the company also guided up their next quarter. Also strong were Zscaler and Ulta, those two are popping higher in the pre-market. Elastic beat but offered slightly lower guidance.
After hearing a trade court declared tariffs by President Trump illegal the stock market shot up, well at least the futures did overnight with some pretty sizable gains. But when the excitement ended the futures fell and the markets only opened a smaller amount and even sold off into the red during the session. With some window dressing for the end of May we could see things really slow down today with more erratic price action.
With markets mostly higher in the morning but falling during the day breadth held a positive advantage but was well off its best levels of the day. Oscillators are back to the flat line now. New highs continue to flirt with the zero line, this indicator is neutral.
Pretty strong turnover at the start of the day but then some selling hit during the lunch hour and there was severe distribution in the industrials (thanks to weakness in Salesforce). Given the overall performance this week and the last day of trading in May we might see even lower turnover today in anticipation of the new month starting on Monday.
Equity futures Thursday morning tagged the 6K level but that was too much to ask for, the bulls were a bit giddy and prices came down as the sellers hit the bid. When that happens we need to reference that area, but of course the SPX 500 did not have a chance to trade up there. Regardless, markets did try to open substantially higher and could not hold the strong gains, but we suspect the old highs around 6,150 will be re-visited sooner rather than later.
The Internals
What’s it mean?
After the initial jolt higher the markets faded badly but still managed a modest gain in the SPX 500 and Nasdaq. Internals were weak all day and if you noticed that early you could have faded the market as well. Put/calls curiously rose up, meaning put buyers are getting active while ticks were mostly mixed, red and green all day. The VOLD and ADD did finish on a high note but much lower than Tuesday as one would expect. ADSPD was impressive but not quite a trend up day.
The Dynamite
Economic Data:
- Thursday:GDP revised, jobless claims, pending home sales, 5 fed speeches
- Friday:PCE, consumer spending, inventories, consumer sentiment, Mary Daly speech
Earnings this week:
- Thursday:FL, BBY, KSS, BURL, MRVL, DELL, ESTC, ULTA, COST, GAP, ZS, AEO, AMBA, NTAP
- Friday:SCVL, CGC
Fed Watch:
After some suspected relief from President Trump over trade policy this weekend the Fed may be willing to take a more dovish stance. Simply put the committee is not convinced tariffs won’t be inflationary. We’ll hear more with the many speeches this week along with the minutes from the last fed meeting in May.
Stocks to Watch
NVIDIA – The big semiconductor company will release earnings this week and all signs point to another strong report. Having fallen sharply last month the stock really bounced back in a big way, but it will be this report Wednesday evening that really tells us how traders will be positioned.
Costco – With weak earnings from Target and even Walmart some out there are questioning retail stocks, so Costco’s report will be analyzed carefully. Are they seeing any slowdown of spending? How about tariffs and trade?
Interest rates – Will this finally be the week rates come down as bond buyers step up to add more fixed income? It seems the sellers have been rampant of late, causing yields to rise to worrisome levels.
