The Fuse
Equity futures are up following a massive drop to end October on a down note. Today’s non-farm payroll report will be very important as it presages the election and the next Fed meeting. Many are looking for a number just north of 100K new jobs created. The market is well-bid this morning, and with lower volatility, we’ll see if it lasts. If the job report is weak small caps will take the lead.
Interest Rates are bumping higher, fixed income players are worried a strong job number will slow down rate cuts and perhaps be inflationary.
Commodities have been rising up lately. Fed futures see a 94% chance of a cut next week, 75% chance of a cut in December. The 2 year yield pushed above 4.2% for the first time in 2 1/2 months and backed off. If the labor report is weak this yield will fall sharply.
Stocks in Europe stoked a nice rally overnight, the STOXX higher by .5% while the dollar index pushed higher as well, by .2%. Gold is back up as is crude oil, higher by 2% on supply fears. In Asia, stocks in Japan were down sharply, off 2.6% while Hong Kong was up .9%, Shanghai down .2%. The German 10 yr bund yield rose 2 bps while the 10 yr treasury yield was up by 1bp.
Earnings last night from Amazon were stellar, that stock regaining some lost ground and making a run at $200. The guidance was excellent as well.
Apple was a nice beat but guidance a bit soft, Atlassian blew it out of the water with a strong quarter, Intel also higher.
Stocks were pounded mercilessly, the biggest drop in weeks as the last day of October was filled with more tricks than treats. Earnings season is in full season, but the bloom is off the rose. Stocks like Meta and Microsoft were pushed down by weaker guidance, meanwhile other stocks like Uber, Merck, Roku and Coinbase were rocked as well. The jobs report coming out today could be a gamechanger for the market momentum.
All that selling had an expected negative effect on breadth, which is back on a sell signal. The 2-1 negative breadth squandered yesterday’s bullish move, but that is not too surprising. Oscillators are now in bearish territory again, nearly oversold enough for a large bounce. New lows are starting to seep in now, if that continues longer the bull signal on this indicator will be over.
It was a definitive distribution day across all market caps, the nasdaq 100 taking the worst of it. Yet, we also saw the Industrials getting ripped hard as well, there was no respite whatsoever. Turnover was brisk from the start as the bears began feasting on the recent buyers. We have not seen too many distribution days of late but if they stack up then the market trend will be in jeopardy.
A nasty day as short term support was sliced through like a hot knife through butter. The end of the month brought an avalanche of selling, so much so there are lower targets now to consider. The SPX 500 landed on the 50 ma, we’ll see if that holds, otherwise to 100 ma at 5589 is a good target. The Nasdaq finished on its lows and below 20K, we’ll see if that 19,300 comes back into play next. The Industrials are atrocious, below the 50 ma, not oversold yet and with sights set on the 40,800 area. Not good if you are a bull.
The Internals
What’s it mean?
Just a miserable day for the indices and the internals. The VOLD sticks out here, it finished on the lows and extended, the TICKS red all session long. The VIX climbed higher, reaching the 23% level, not seen since early September. If anything, the bulls need to circle the wagons and get re-charged. Put/calls are rising again, ADD was awful. It’s not looking good for the market trend into the new month.
The Dynamite
Economic Data:
- Friday:October labor report, S&P FINAL PMI manufacturing, ISM, construction spending, auto sales
Earnings this week:
- Friday:XOM, CVX, FUBO, W, CHTR, LYB, BFLY
Fed Watch:
No Fed speakers scheduled for the week but they said plenty in early October! Several members stated in no uncertain terms they are not going to move aggressively on rate cuts. The market still does not believe it, but so there is a disconnect. The Fed always wins when it comes to policy, but the futures market is going out on a wire, expecting two cuts. They are likely to be disappointed.
Stocks to Watch
Mag 7 – It’s a big week for these high voltage names. We had a big move up in one name last week in Tesla, and five others will report this week including Apple. No doubt these stocks will beat handily, but we’ll have to listen closely to guidance. Most have been beaten up the last couple weeks, a good response would lead markets higher.
Labor Report – The all-important labor report comes out Friday and that will be a gamechanger. We had strong growth in jobs during September, will there be followup? All signs point to a goldilocks scenario, but a strong job number will push the Fed back in their rate cut adjustments.
Yields – Rates have risen sharply across the curve since the big rate cut in September. What might get bond buyers interested again? Perhaps a cooling off in the labor market and a milder than expected GDP for Q3 (out Wednesday).
