The Fuse
Equity futures are getting pounded this morning after China retaliated over President Trump’s threat of 100% tariffs on China products starting November 1. We are back to highly volatile conditions now, not much different than they were in the Spring. As we are now in a seasonally bullish period that might be on hold for a bit longer.
Bond buyers are back this morning as interest rates are dropping on some economic worries with trade talk. Yields may come down more if bond investors sniff a slowing economy due to the government shutdown, layoffs and a weak employment report.
Stocks look to open at least 1% lower on higher volume today, Europe was down as well with the STOXX off .7% led lower by Germany and France. FTSE was down .3%, gold is higher again and making new all time highs, same for silver. Crude oil is down sharply, more than 2%. The dollar index climbed .2%. Stocks in Asia were lower, Japan off 2.6%, Hong Kong down 1.9% as Shanghai was off .6%>. German 10 yr bund yields down 4bps, US 10 yr treasury down 2bps.
Earnings from JPM this am were strong and they guided a bit higher. Same can be said for GS and WFC, both stocks responding positively to a beat and guide up. JNJ had a nice beat and raise, as did Domino’s, which is up 3.5% on better than expected earnings. Tomorrow we hear from ASML, Dollar Treem, Morgan Stanley, Abbott, Synchrony and others.
Let’s call it ‘turnaround Monday’. The bulls really turned the tables on the bears yesterday as those bearish traders just could not put another whoop onto the bulls. That might spur more buying too, as we start up earnings season and a seasonally bullish period commences. Monday’s rally was sharp, broad and on good volume, but not as much as last Friday. That tells us maybe the Friday session was a one-off, if there is followthrough to the upside today then we can reach that conclusion.
Some very strong breadth yesterday but let’s not get overly excited yet. This reading is coming off a very low condition last week, and with oscillators very well oversold it seemed a natural response to the intense selling on Friday. One day at a time, but the oscillators did move towards the zero line, 1-2 more days of good breadth would do the trick to turn this bullish.
Above average volume yesterday but did not clear the readings on Friday, which were massive after that market turn down. That’s fine, there is plenty of news to come and option expiration Friday this week, don’t forget the many fed speakers on Tues/Wed/Thurs with perhaps Chair Powell making an appearance as well.
The industrials tagged the 50 ma on Friday, closed right on it. The other indices came close to it but were denied that ‘easy’ read for a test of lower levels. Regardless, that large move down Friday seemed to be enough bearishness to warrant a rally, now the bulls need some followthrough today.
The Internals
What’s it mean?
A total turnaround from Friday, the bulls had it going all day Monday with strong internals. The VOLD, typically the leader of the internals was terrific, but now we need to see more evidence that the selling will not continue (followthrough day). ADD was strong and held up nicely, heavy TICKS all day in the green portraying buy programs while the VIX declined sharply all session. Good day for the bulls to step up.
The Dynamite
Economic Data:
- Tuesday:More fedspeak, NFIB index
- Wednesday:Empire State, more fedspeak
- Thursday:Retail sales, PPI, philly fed, jobless claims, homebuilder index, lots of fedspeak
- Friday:Housing starts, building permits, industrial production, cap utilization, import prices
Earnings this week:
- Tuesday:JPM, BLK, GS, C, WFC, JNJ, DPZ, ERIC, ACI, BCE, HWC
- Wednesday:ASML, PGR, DLTR, BAC, MS, SYF, CFG, ABT, PLD, UAL, JBHT, SNV, PNFP, BANR, EPAC
- Thursday:TSM, BNY, KEY, INFY, SCHW, TRV, CMC, MTB, MMC, IBKR, CSX, SFNC, FNB, OZK, LBRT
- Friday:ALLY, SLB, STT, AXP, RF, TFC, HBAN, CMA, ALV
Fed Watch:
Lots of fed speakers this week coming out to talk about the economy. This will like be the last big week of fed speakers before the Oct 29th fed meeting, which seems to be one where the committee will cut rates one more time. No doubt some will be talking tariffs again along with the government shutdown, which is likely to be a drag on growth.
Stocks to Watch
Banks – This group has been weaker of late but that is perfect timing in front of earnings. Whenever the financials rally before earnings it usually means downside, we have the opposite situation here.
Tariffs and China – A mid afternoon swoon after President Trump said 100% tariffs on China starting November 1. If this is just rhetoric, a threat or something real we will soon find out after China responds. More uncertainty.
VIX – A huge move in volatility on Friday, perhaps a bit too much but we’ll see how the market responds on Monday. There is nothing wrong with a little fear but if it continues then it could be problematic.
