The Fuse
Futures are slipping a bit this Friday am as the selling continues. Rates are higher on the long end, even the 10 yr ticked up at 5%, meaning bond sellers are still out there. Plenty of worry out there in the economy and overseas geopolitical issues.
Interest Rates are on the move again, the 30 year is well over 5% while the 2 and 10 were also higher and above 5% (for a moment). Higher yields are a higher cost for businesses and an alternative to investor’s risk appetite. Further, bond selling has been rampant for weeks and it does not appear to be slowing down.
Yesterday Fed Chair Powell made one comment that torpedoed the markets: ‘I don’t think financial markets are tight enough’. This meant he feels rates need to go higher at some time in the future, whether it’s next month or into 2024. That helped to push down markets sharply while gold rose up with the recent talk of higher inflation.
Earnings were out last night from ISRG, CSX and WDFC among others and they were ugly. This morning a beat from AXP but a miss from SLB on revenue. A few regional banks reported as week and they were mixed to down. Earnings have mostly been coming in better than expected but next week’s barrage of earnings from various sectors will give us some good detail.
Chair Powell delivered a knockout blow to the bulls in his Q/A yesterday, helping to push the markets over the edge and into correction territory.
Leading up to his appearance, markets were teetering as interest rates were again on the rise.
Breadth was down all session long but really fell hard late in the day as the sellers totally swamped the markets. This indicator is now on a sell signal after being on a buy for only two sessions. Pretty fickle, but noticeable as new lows continue to rise over new highs.
It’s tough for the bulls to have the markets rise when volume is so bearish. Even as the markets were moving around all day long, the buyers really never stepped up to the plate with any committment. That tends to be a problem, and when sellers hit the bid lookout below.
Well, as we mentioned earlier in the week there was enormous pushback at the 4,385 level, the top end of a range while the bottom of that range is the 200 day moving, call it 4,230. We should see a test of that area in the coming days.
What’s it mean?
Absolutely nothing worked in the bulls’ favor yesterday. Chair Powell delivered the blows at midday and said ‘monetary conditions are not tight enough’. That was a huge surprise apparently, and the VOLD sold down viciously with the ADD and ADSPD clocked a trend down day. VIX soared and closed at its highest level since March. Look at the ticks, red as can be. There was a huge focus on selling all day long, and eventually the indices fell on the sword. The internals have been awful for weeks.
The Dynamite
Economic Data:
- Friday:Japan Inflation, German PPI, UK retail sales
Earnings this week:
- Friday: AXP, SXT, VFC
Fed Watch:
More Fed speak this coming week, but we heard plenty the last two weeks and from the meeting minutes released on Oct 11th. It seems the latest data and information is slowly turning the Fed less hawkish, but only slightly. Yet, there are several on the committee who are willing to wait it out even longer. Let’s see how the market responds to the higher inflation readings from last week.
Stocks to Watch
Netflix – Always interesting to watch how this stock moves following earnings.
Tesla – This EV company reports earnings this week and while car sales have been brisk, the concern is over margins as Tesla continues to cut prices sharply.
Interest Rates – They rose sharply this week then collapsed again Friday, we’ll see if they make a run at new highs or fall down as the safety trade is back (Middle East turmoil). We’ll be watching gold as well, which put in a spectacular week.