The Fuse
Equity futures are getting smashed this morning but well off their lows. With strong gains in the stock market this year and low volatility there is quite a bit of complacency, that can be wiped clean with a couple of nasty down sessions. Having put protection on is most important.
Interest Rates are slightly lower this morning as the safety trade becomes more interesting. The 2 yr is starting to stabilize, would prefer to not see it rising up past 3.7%. Junk (HYG) has broken some key support levels (50 ma) so that needs to be watched closely, spreads are widening. Fed futures have improved and now see a 72% chance of a cut at the December meeting.
Stocks are pointing lower this morning after the STOXX fell sharply, down 1.2% led down by France and Germany. Issues were down in Asia as well, Japan off 1.7%, Hong Kong and Shanghai down fractionally. US dollar was flat, gold is down but defending 4K, silver is off. Crude oil down 1.5%, Yields in Germany and the US down 1-2bps.
Earnings are happening in a big way this week. Last night Palantir ripped the cover off the ball and raised guidance significantly but is selling off on some profit taking. That makes sense, the stock is up huge so far in 2025. Fabrinet also beat and raised their earnings guidance, this morning a solid beat for Spotify. We’ll hear from Uber, Shopify, Pfizer and a few others later. Tonight is AMD, Arista, Astera Labs, Upstart, Axon and a some others.
It was an up session for markets but it was far from impressive. All day long the bears were pressing and winning, but some buy programs in the afternoon knocked them over. Yet, as mentioned the day was not pretty with weakness in the industrials and small caps, which tend to weigh on the oscillators (see below). Can the bulls get back on track? Most certainly but they need to get past some of this hesitation.
It was an ugly day again for breadth which was much worse earlier in the session but managed to scrape back some losses. In the end it was a negative day and oscillators went deeper into the red, they are still on sell signals. New highs are still beating new lows so that indicator remains long term bullish, but it could change quickly. Seasonal trends are bullish but that can only carry so far.
Low volume is characteristic of this market on the down sessions, though we have seen a cluster of distribution days showing up. That would mean professional selling by big institutions, which if continued would call into question the health of the current rally. Nothing to fear yet.
Small caps were really slammed hard yesterday as the much waited for test of support may be coming. That could slingshot this market higher, recent clues tell us buyers just don’t want to participate at these higher levels.
The Internals
What’s it mean?
As mentioned yesterday the internals from Friday seemed to be suspect, and we warned to be careful. That may bite later this week as perhaps some overdue selling from October starts to hit. Notice the weakness in VOLD and ADD, though the latter did rally up a bit towards the end of the d ay. VIX was hammered but did come off the lows, while TRIN is stable and the put/call is starting to make people nervous. Ticks were mostly red, sell programs all day long. Not a win for the bulls, under the hood there is trouble.
The Dynamite
Economic Data:
- Tuesday:More Fed speak, possible reports
- Wednesday:ADP, PMI, ISM
- Thursday:5 fed speakers, maybe some economic data
- Friday:Potential for jobs report, consumer credit, sentiment, fedspeak
Earnings this week:
- Tuesday:UBER, SHOP, SPOT, PFE, PB, RACE, NCLH, AMD, ANET, SMCI, ALAB, BYND, UPST, AXON, PINS
- Wednesday:NVO, HUM, MCD, U, CCJ, BCO, AES, HOOD, IONQ, APP, AMC, BROS, QCOM, ARM, SNAP, FIG, ELF
- Thursday:COP, BCE, OSCR, VST, AZN, DDOG, ASPN, SBD, MRNA, TTD, OPEN, MP, IREN, SOUN, DKNG, INOD, ABNB
- Friday:CEG, WEN, FLR, SIX, BAM, DUK, HLLY
Fed Watch:
Last week’s Fed meeting was quite interesting. There were two dissents among the voters, one wanted no rate cut, another wanted 50bps. The committee gave the market what it wanted but Chair Powell refused to yield to market pressure for a December cut, instead saying it was ‘not a done deal’. That send the fed futures tanking and the market did as well, but it certainly came roaring back. It appears the markets are accepting the path of rates, whether fast or slow.
Stocks to Watch
Gold and Silver – Precious metals continue to do well with markets also strong. They could continue much higher into year end, and with strong momentum why not?
Bitcoin – With two months left in the year the shining alt coin could be poised to make a big move to end the year in style, at new highs. This week may start the process.
Earnings – Very strong earnings reports this quarter and this week will be the biggest one yet, more companies delivering that last week. We’ll get a good read on market valuations after this week is over.
