The Fuse
Equity futures are on the rise this morning, higher earlier this morning but tech stocks have a nice bid. Nasdaq is higher by about .5%, the Dow Industrials up as well, first time in six days, we’ll see if it lasts. The laggard could be the IWM, higher now but it may falter as rates are moving up. Today is statistically the best (bullish) trading day of the year (Oct 28 is the one day stocks are up the most times).
Interest Rates are on the rise this morning, the 2 yr is making. move on 4.2% once again. The rise in yield has been steady and a bit surprising, but the bond market is telling the Fed they may need to slow it down on rate cut pace. The committee will probably agree with that assessment, Friday’s labor report will also be a gamechanger for the markets going into the next couple of months.
Strong performance in Europe and Japan are stoking a rally here in the US. Euro Stoxx were up .2% even has big electronics name Phillips shed 12%. The dollar rose up .1%, 10 yr German bund yields were up 3bps, Japan pushed higher by 1.8%. In China, Shanghai was up .7% while Hong Kong was flat. Crude oil is sharply lower, now below $68 per barrel after Israel chose not to bomb Iran’s oil facilities.
Earnings will play a big role in market movement this week. Several big tech names report including Apple, Amazon and Microsoft, while some other big Industrial names will also deliver Q3 earnings. Tonight we’ll hear from Waste Management, Ford, Cadence and F5 Networks, tomorrow am we have McDonalds, Paypal, Sofi, Crocs, BP, Pfizer and Tenet Healthcare.
Another big convergence with the end of the month coming up along with some big earning reports, and then some key economic data. Traders will have their hands full dissecting Apple, Amazon, Meta, Microsoft and Alphabet this week among others. Can the tech sector save the rest of the market? The heavy bulk of earnings for the SPX 500 will hit this week, and we’ll have a clear picture of GDP on Wednesday.
Breadth was weak again Friday, a theme we have been seeing for the last several days. That weakness has put this indicator on a sell signal, but the oscillators are nearly oversold, at a good level where reversals often happen. New highs continue to be new lows but the margin has shrunk quite a bit. This indicator goes a long way in determining how long a trend will last.
Volume trends are mildly bearish. Chalk up another distribution day for the indices (save for the Nasdaq). That makes at least four distribution days over the past two weeks, again not alarming but something to watch out for carefully. Remember, a cluster of these can change the trend from bullish to bearish. We should see good turnover this week with end of the month and some big earnings reports, bulls just need to see price action be positive at the same time.
Support levels remain in place. The SPX 500 seems to have a buyer around the 5,800 level while Nasdaq 100 flirts with 20,300. The IWM has some good support at the 50 day moving average, or 217.5 but the bulls would not like to see that broken. A bit more sideways, a higher high/higher low would be ideal for the IWM (along with lower interest rates!). The industrials are a mess, on a 5 day losing streak but with support below at 41,800 (50 day ma).
The Internals
What’s it mean?
Friday the markets were on fire and looking to make new highs in the SPX 500, but it was not meant to be. Buying stalled out, and since it was a Friday the bulls decided to this opportunity pass. VOLD barely went higher and finished on the lows of the day, same with ADD. That means buyers were nascent. Ticks were mostly red, several sell programs hit during the day to knock prices back. Perhaps traders gearing up for a big week. VIX climbed as well and is back above 20%, concerning.
The Dynamite
Economic Data:
- Monday:N/A
- Tuesday:Consumer Confidence, JOLTS
- Wednesday:ADP, GDP first look, trade balance, retail/wholesale inventories, pending home sales
- Thursday:personal income/spending, PCE, jobless, claims, employment cost index, Chicago PMI
- Friday:October labor report, S&P FINAL PMI manufacturing, ISM, construction spending, auto sales
Earnings this week:
- Monday:F, CDNC, WM, RMBS, FFIV, VFC
- Tuesday:SOFI, PYPL, BP, MCD, PFE, RCL, JBLU, CROX, THC, AMD, GOOGL, SNAP, CMG, V, FSLR, RDT, QRVO, CB
- Wednesday:LLY, CAT, HUM, BIIB, EAT, ADP, SAN, MSFT, META, COIN, HOOD, ETSY, ROKU, SBUX, CVNA
- Thursday:UBER, PTON, MRK, COP, SIRI, MO, MA, EL, NWHL, AAPL, AMZN, INTC, TEAM, ARDX
- Friday:XOM, CVX, FUBO, W, CHTR, LYB, BFLY
Fed Watch:
No Fed speakers scheduled for the week but they said plenty in early October! Several members stated in no uncertain terms they are not going to move aggressively on rate cuts. The market still does not believe it, but so there is a disconnect. The Fed always wins when it comes to policy, but the futures market is going out on a wire, expecting two cuts. They are likely to be disappointed.
Stocks to Watch
Mag 7 – It’s a big week for these high voltage names. We had a big move up in one name last week in Tesla, and five others will report this week including Apple. No doubt these stocks will beat handily, but we’ll have to listen closely to guidance. Most have been beaten up the last couple weeks, a good response would lead markets higher.
Labor Report – The all-important labor report comes out Friday and that will be a gamechanger. We had strong growth in jobs during September, will there be followup? All signs point to a goldilocks scenario, but a strong job number will push the Fed back in their rate cut adjustments.
Yields – Rates have risen sharply across the curve since the big rate cut in September. What might get bond buyers interested again? Perhaps a cooling off in the labor market and a milder than expected GDP for Q3 (out Wednesday).
