The Fuse
Equity futures are getting kicked this morning following a couple of Mag 7 earnings last night and weaker stocks that followed. There seems a pause on the buying here until next week’s election is passed, but today is the last trading day of the month and could be a volatile session. Keep protection on at all times.
Interest Rates are falling slightly today but yields remain stubbornly high. The 2 year broke through yesterday and is right near 4.2%, which is only 55bps below the fed funds rate. If the committee decides to cut next week that would help to flatten out the curve, which is bearish for equities.
Following the drop in US markets yesterday the STOXX in Europe was down sharply, off .5%, France and Germany’s indices fell about the same.
Gold raced up to 2,800 but is now off about 11 dollars, crude is trying to make a run back above $70. German 10 yr bund yields are up 1 bp, the 10 yr treasury yield down 3 bps.
In Asia stocks in Japan were down about .5%, Hong Kong dropped similar what Shanghai was up .4%.
Earnings out last night on Microsoft and Meta and both were good but the guidance a bit soft. Coinbase and Robinhood also delivered good earnings but a bit lower than expected. Dow component Merck is off slightly on earnings, Starbucks is up modestly following downbeat guidance. Later tonight we’ll hear from Amazon, Apple, Intel and Atlassian, tomorrow Exxon and Chevron.
As we get closer to the election and some resolution the market volatility is going to get stepped up. Certainly that explains the erratic action of late, the wild market movements that tend to make little sense. Of course, being around new highs and with so much uncertainty about the near-term future makes everyone wonder how things will go.
Breadth was actually positive but that masks how the day progressed. It was pretty strong to start, the small caps led the way but as the day wore on the advantage of the bulls started to slip away. Oscillators went south, the Nasdaq much steeper losses, and now we have the markets in a tough spot. It is now the end of the month with some negative earnings movers and some big ones later today, then jobs tomorrow. If this downtrend continues it will create an avalanche of selling.
Turnover came in about the same as Tuesday, slightly more elevated in the Industrials and the QQQ, where much of the heavy selling took place. The Industrials continue to show bearish qualities. Now, if this is simply a garden variety correction then we could see a turn some time very soon, this market is very oversold. Yet, there are some earnings from the index out this week which may have influence (Apple, Amazon, Chevron, Altria, Intel, ExxonMobil).
The SPY and IWM continue to find good support at the 20 day moving average. If that holds and these indices start to show a turn to the upside, we’ll know that holds firm and the markets may start to rise. The Nasdaq is above that level, the DIA however is trapped below and now the 20 ma is starting to bend lower. That is a bearish sign, but as this is oversold it can be rehabilitated with a couple of swift bullish days.
The Internals
What’s it mean?
Very low energy yesterday as the internals were not focused on making a bullish run. Just look at how bad the ticks performed, red as day on both the NYSE and Nasdaq, while put/call rose up, the VIX also finished at the highs of the session, above 20%. That presents a problem for the bulls, an uptrend in volatility at a time of high uncertainty is not welcomed with open arms. VOLD just rolled over end of day, ADD, the same.
The Dynamite
Economic Data:
- 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:
- 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).
