The Fuse
Futures are sharply lower this morning following news this weekend of an attack on Israel by the Hamas Group. Hundreds were killed in this vicious attack, the consequences yet to be determined. But Israel has declared war against Hamas, this conflict is rather new and could last awhile. Oil prices and gold are higher.
Interest Rates are coming down a bit after the news in the Middle East over the weekend. It seems some short covering continues from the middle of last week, but this is more of a safety trade. Certainly inflation will be looked at carefully this week. The bond market is closed today in observance of Indigenous People’s Day.
A very strong jobs report surprised many on Friday as the Fed may be pleased or not pleased by the numbers. A sharp rise in jobs and revisions to last month sparked a huge oversold rally where the SPX 500 moved over 100 handles during an intraday swing.
Nothing to report today but earnings season gets underway this week in a small way. Pepsi will report Tuesday morning while some big banks, Delta, Fastenal report later in the week.
Israel is now at war and we need to be careful with assuming this will be a ‘ho hum’ event. There is the likelihood the US is pulled into this for support at some point, much like Ukraine.
Breadth was better and actually finished mild, but the turn from the early weakness was evident. At the start breadth was miserable and it appeared to be another negative session, but the buyers took control at a washed out condition.
Turnover was pretty strong as the indices notched an accumulation day. That’s important but the bulls would need to see several of these to make it really stick.
Following the jobs report release markets pulled down sharply towards support (SPX, 200 day moving average) but snapped back with force as volatility sellers were active. They pushed the VIX down and in turn the ES futures rose up. We are still in a wide range, the 4,330 level looms large as a spot where support fell recently. This last week’s finish basically puts the indices back to where they were at the end of September.
The Internals
What’s it mean?
Finally a quality up day for the markets. The best rally attempts happen on big reversal days like Friday. Notice the turn in the VOLD and the ADD, and the VIX just collapsed under its own weight all session long, and finished sharply lower. TICKS were green most of the day and did encounter some selling but for the most part the bulls had the upper hand.
The Dynamite
Economic Data:
- Monday: Holiday
- Tuesday: Small Business Optimism Index, Wholesale Inventories
- Wednesday: FOMC minutes, PPI, Treasury Budget
- Thursday: CPI, Jobless Claims, WASDE report
- Friday: Import/Export Prices, Michigan Sentiment Index
Earnings this week:
- Monday:
- Tuesday: PEP
- Wednesday:
- Thursday: DAL, DPZ, FAST, WBA, INFY, SGH
- Friday: JPM, UNH, PGR, WFC, BLK, PNC, C
Fed Watch:
There were a slew of Fed speakers last week talking up monetary policy, but really nothing changed. Loretta Mester from Cleveland led the charge of higher for longer, and the committee seems head-strong to get inflation down to its 2% target, likely by the end of 2025. If that’s the case, rates will be coming down but for now we’ll have to live with higher rates, the punishment for high inflation. That said, the jobs report Friday was very strong on the headline and wages moved slightly lower.
Issues/Stocks to Watch this Week
Financials – Banks are in the spotlight this week, at least a few of them as we see how recent slowing in the economy and higher interest rates affect investment, loans and income. Friday is the day.
Inflation – Two big readings on inflation this week are the CPI and PPI, but other data will be scrutinized as well. The August headline saw an annualized rate of 7.2%, which is clearly in the wrong direction. Stocks took it in stride.
Internals – The indicators have been weak for about two months as the stock market glides through a corrective phase. But improvement on a Friday is not common, so with an oversold condition at hand we could see a more substantial rally develop towards resistance.
