The Fuse
Equity futures are down this am, smarting from weak guidance from Walmart and Cisco post-earnings. Walmart for sure is a bit of a surprise on the guidance but the stock had a huge run-up over the past couple of months, so pulling back may be a healthy move. Chinese and European stocks were modestly lower overnight, tomorrow is a big options expiration, volatility remains low.
Interest Rates are down on the long end of the curve, bonds are higher as demand for fixed income remains robust since last week. The curve inversion is widening once again, next move in the ‘chess match’ is likely from the Fed, to lower short term rates at some point. Markets are looking for the early part of 2024 for that to happen.
A heavy dose of Fed speakers today and tomorrow, seven on the docket later today and five more on Friday, probably talking about current monetary policy and the latest inflation reports.
Pretty poor guidance from Cisco and Walmart but good guidance last night from Palo Alto Networks. This am strong numbers and guidance from Macy’s and Alibaba but the latter is not up on the news.
The bulls were not slowing down much following the spectacular rally on Tuesday. Even though retail sales came in weak the PPI was also weak and that brought some buyers in early, but that soon became a ‘market fade’ as the market has become very overbought here and is due for a pullback. Yes, even after one session the stock market can be overbought enough to start a corrective move down.
After that amazing breadth day we settled down a bit, while breadth was positive it was really anemic for most of the day, the Russell 2K was the weak sister on Wednesday. That’s fine for now, the broad rally Tuesday can make up for poor action a bit longer. But we have to be cautious of heavy selling into the holiday next week, which is often bearish (seasonal).
Volume was elevated but not as high as Tuesday’s turnover, which means buyers from Tuesday’s rally are holding onto stocks. That’s important to know, a reference point at the lows from the big rally is a reminder where buyers are stepping in to add stocks. Even as the market is overbought here, the bulls would not want to see the markets fail on bigger volume.
In a matter of days the SPX 500 has moved up 400 points. That is a tremendous rally of nearly 10%, all of it coming in the month of November.
What is impressive is the price action when faced with a decision point, be it resistance or support or simply overbought/oversold conditions. It is clear seasonal trends are playing a big role here, and that will end at some point. Can the markets continue to rally if the conditions are not ideal?.
What’s it mean?
Following up such a strong day means heavy lifting for the markets. For the most part, we saw strength for the internals but not flexing as much power as Tuesday. Put/calls did rise up and notice the ticks, pretty even throughout the day. The VOLD was higher but not nearly like the prior session, VIX was down as December became the new front month. It’ll be interesting to see how the market finishes the week and if 4,500 holds on a weekly close.
The Dynamite
Economic Data:
Earnings this week:
- Wednesday: AAP, TGT, TJX, CSCO, KLIC MMS, PANW
- Thursday: BABA, BBWI, M, WMT, WMG, AMAT, BHZ, GPS, ROST
- Friday: BJ, BKE, FL
Fed Watch:
A pretty loud roar by the crowd on Thursday after Jay Powell doused cold water on the markets. What did he say that caused a panic? Nothing different than last week, which said the committee remains vigilant and is looking to eliminate high inflation, and will keep rates higher for longer. Maybe the market was looking for some softer language, but Powell and his colleagues were not going to offer it. Plenty more Fed speakers this week with NY Fed Williams out early.
Stocks to Watch
Inflation – For one of the first times in a few years CPI is expected to rise less than 2% on an annualized basis for October. That may soothe the Fed for a bit, but frankly we would need to see more data than just one month. It’s a good start and moves in the right direction. Core CPI remains a bit hot.
Options – It’s a big expiration week on Friday and we have some large open interest that is now in the money. Will these holders turn the screws on the bears and push the markets up towards 4,500?
Retail – Big retail names report earnings this week like HD, TGT, WMT and TJX. Further, we’ll have a retail sales report out on Wednesday which may give us a good read into holiday shopping as black friday approaches.