The Fuse
Equity futures are rallying modestly this am after another drubbing for the stock market on Thursday. Earnings have been decent but for the bigger names such as Google, Tesla and Microsoft the reaction has been sharply negative.
Interest Rates are rising again on the long end of the curve a bit this morning as bond sellers continue to shed fixed income. With yields on the rise and a Fed meeting next week which may signal more rate hikes there is no reason to holding bonds.
A huge hurricane hit Mexico’s pacific coast and perhaps may disrupt some oil production for a time. Crude is rallying sharply this morning while gold is down. The PCE report today will be the one big economic highlight to watch. European markets were mostly unchanged.
Solid beats by Chipotle, Amazon and Intel last night have helped put a bid under the markets. Ford came in a with a miss. ExxonMobil and Chevron are down on slight misses versus estimates. More big earnings to come next week.
GDP was pretty strong but so was the price deflator, which means growth simply came from rising prices and not productivity. The increase in inflation reflects the worry of the Fed and the need to keep financial conditions tight. More bond selling from the Fed’s balance sheet happened this week.
Breadth finally put in a positive day but it barely made it. On a day when the indices were slammed we could actually say this was a positive divergence for a day – winning breadth. What does it mean? Not much other than markets are severely oversold and in need of some relief rally.
More high volume selling Thursday but some buyers started coming back. We don’t expect to see too much enthusiasm in front of the weekend, where events can spur futures to rocket or flop and volatility to move.
We mentioned yesterday once 4200 fell on the SPX 500 there was plenty more downside to 4100. We are nearly there now, though a short term oversold condition may actually help the market work a bit higher. No question this correction is not over, though the new month may bring some new money in, and once the Fed meeting is behind we could again see a drop in volatility.
What’s it mean?
Internals were not as bad as the market results Thursday, interestingly the VOLD was flat and was not lower as the previous session. Ticks were super red all day long but we did see a bit of buying in spurts, so some bulls are still out there trying to pick up bargains. Put/call is on the way down and that is a positive but it remains elevated. Volatility is now above 20%, the 20 ma of the VIX is approaching that level, too.
The Dynamite
Economic Data:
- Friday: PCE price index September, Michigan Consumer Sentiment
Earnings this week:
- 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.