The Fuse
Equity futures are soft this morning in a continuation on Thursday’s selling. We have an important data piece in the May PCE report, a key metric the Fed follows in forecasting inflation. If prices are rising slower that may help change the Fed’s mind about rate cuts and when they might happen.
Interest Rates are slightly lower on this last day of the month. We continue to see the 10 year yield rallying up towards the April highs around 4.7%, the 2 year is hovering just under 5%. The trend in rates across the board is bullish, with higher highs and higher lows in place. Fed futures are pushing out rate cuts to September at the earliest, some Fed speakers were out with hawkish language this week. Former NY fed president Dudley was even more hawkish, saying ‘higher rates indefinitely’ should be the new mantra.
President Trump was found guilty on 34 counts of false business practices. This may have implications for the stock market eventually. Eurozone inflation is on the rise but the ECB next week may consider a rate at their next meeting. Gold is flat as is crude oil. Stocks in Asia were mixed, Japan gained 1% while Shanghai declined .2%. The US dollar was slightly higher.
Earnings last night were a disaster. Dell beat but guided lower for margins with AI server products. MongoDB was beaten up after a miss while Zscaler beat lowered expectations. Costco beat as did Ulta Beauty, Marvell had strong numbers but soft guidance.
Just a tough trading day as markets spilled from the open and never recovered. There seemed to be a possibility markets could recover as rates were lower near the opening print and small cap stocks, which often lead were higher as well. That combination pointed towards good breadth, which was evident all session long. However, the price action matters most and that was poor from the Industrials, Nasdaq and SPX 500. This could be the start of a bigger correction.
Strong breadth yesterday but only due to the better results in the Russell 2K. That index was strong all session long, at one point up nearly 2%. That was the driver of breadth, though Nasdaq and NYSE breadth (oscillators) was lower on the day. Oscillators are now pretty oversold here so a rally could ensue at anytime.
Super heavy turnover on the Dow Industrials caught our eye yesterday. With the miss from Salesforce and the massive volume on this name it carried some influence. We saw distribution across the board, save for the Russell 2K. Today is the end of the month and we could see a bit more volume hit before the new month begins. Pretty heavy earnings hit last night.
Hard to believe but the Dow Industrials have fallen 2000 points in about two weeks. Any level of support has been obliterated down to the April lows, about 300-400 points lower. The SPX 500 may run to the 5,200 level soon, but there is a bit of support at 5,220 and then below that a jump to 5,150. If that fails to hold the April lows at 4,950 are certainly in play.
The Internals
What’s it mean?
It was a hard fought battle Thursday, the internals really show the split in sentiment and behavior. The NYSE ticks were strong all session while the Nasdaq ticks, hella green early faded into the close. VIX rallied most of the day but remains muted still, the term structure is flat on the front end. Notice the VOLD, strong as was the ADD, but indices were down sharply (save for the IWM), and that means distribution remains a problem.
The Dynamite
Economic Data:
- Friday:PCE price index for April, Chicago PMI
Earnings this week:
- 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.
