The Fuse
Futures are weak and falling sharply after Wednesday’s deep selloff below strong support levels. We also see the VIX ticking much higher today as well, which tells us stocks may be under pressure for most of the day.
Interest Rates are steady to higher this am as the 10 year ticked right near 5% again overnight. Higher interest rates make it more difficult to borrow for businesses and consumers. The Fed has raised rates from zero to 5.5% in about 18 month time in an effort snuff out inflation, but they may need to do more.
In political news, the House of Representatives managed to vote in a new speaker of the house. Israel is ready for a ground assault in the Gaza Strip. Stocks in Europe were mixed in front of the ECB decision this am, while Japan was down more than 2%.
Earnings out last night from Meta were a strong beat but the stock is down sharply following reduced capex guidance and simple profit taking.
IBM delivered a nice beat and raised guidance, UPS this am beat reduced expectations but lowered revenue guidance, the stock is off a bit this am. Align is getting whacked after missing earnings last night, ServiceNow delivered a nice beat and raised guidance.
GDP report and PCE will be out today and tomorrow, those could be a game-changer for the markets. A big night for earnings with Intel, Amazon, Ford, Chipotle, Dexcom, Sketcher, Capital One and Enphase.
Breadth was atrocious yesterday and new lows swamped new highs. We mentioned yesterday that rallies were going to be sold into even with positive breadth numbers. The TRIN stood out today (more on that below). The bulls are in ‘hope mode’ here, not a good place to be.
Volume was elevated, much more than yesterday so that notches another distribution day. There have been many of those recently, hence the reason the market is in a corrective phase. Until the heavy selling dies down there won’t be much to be bullish about. Rallies are going to be sold.
That 4,200 level held firm much of the day but in the late afternoon just fell like a hot knife through butter. This level was important to hold, and if there is one more down session following tomorrow the move will be confirmed. Extremely bearish here on the market for this time of year, perhaps more downside towards 4100 is in store. Failing 4,200 opens the door to even more selling.
What’s it mean?
One day giveth, one day taketh away. The internals were simply horrendous yesterday, the VOLD down all day long, and look at the red on the ticks, which were flaming all day long. Not bullish. The TRIN actually made a big move early to the downside, so heavy volume with stocks down meant heavy distribution was happening from the start. VIX did close off the highs of the session, but is still bearish for markets.
The Dynamite
Economic Data:
- Thursday: Jobless claims, durable goods, 3Q GDP initial, pending home sales
- Friday: PCE price index September, Michigan Consumer Sentiment
Earnings this week:
- Thursday: MO, AMT, BMY HOG, HAS, HSY HON, MA, KDP, NOC, UPS, VMC, AMZN, BJRI, SAM, CMG, DECK, DLR, F, INTC
- Friday: ABBV, AN, BAH, CHTR, CL, XOM, CVX, SWK, NWL
Fed Watch:
Probably a slower week of speakers this coming week after a barrage of Fed speak and a killer Q/A from Chair Powell. The Chairman was adamant about current monetary policy and state at least one time that ‘financial conditions were not tight enough’. That torpedoed the market, though he did say the committee could perhaps pass on a rate hike at the next meeting, yet he left the door open to raising rates in future meetings – as he should. We’ll update this week if there is more information from speakers, but after this week the Fed goes into a quiet period.
Issues/Stocks to Watch this Week
Microsoft – Earnings are out on Tuesday, and much has been made about their recent acquisition of Activision and their growth plans with cloud.
If you recall, last quarter they saw a slowdown in this growth and it hit the stock hard. If that is heard again, we may see another leg lower.
Volatility – VIX picked up this week as some fear is starting to permeate the markets. That may spill over this week, but a spike up in VIX and a fall down could lead to a nice rally, too.
Interest Rates – A spike above 5% for the 30 and 10 year were not pleasant news for the stock market. As a result, bond traders continues to sell bonds at a brisk pace and so does the Fed, who shed another 19 billion in bonds from their balance sheet.