The Fuse
Equity futures are up nicely this morning after some strength in overseas markets is spilling over. China cut their reserve requirement ratio overnight, and in the US we’ll have retail sales and PPI coming up.
Interest Rates are on the rise again as the market starts to contemplate another rate hike or two from the Fed. Next week’s meeting likely to see a pause, at least the market is telling us that. What is unknown is how hawkish Chair Powell will be in the press conference, especially in the wake of some disturbing inflationary trends.
CPI yesterday was modestly hot, the ARM IPO is to be released later in the day and is likely to be a ‘sell the news’ event. Semiconductor stocks were well bid yesterday on this hyped IPO.
Not much on the earnings front today but Adobe will report after the close along with Lennar and Copart among a few others. Adobe is likely to be a market mover.
PPI is looking to be a decent number while retail sales will give us a glimpse into back to school selling. We’ll also get a rate decision by the ECB, which could stoke the markets further. Volatility is lower in the early going, tomorrow is a big options expiration day.
Like a broken record, breadth was poor again Wednesday, that seems to be the theme. Decliners led advancers 17-11 as the health of the market deteriorates – yet the buoyancy remains a mystery.
Heavy distribution on the Industrials and the Russell 2K, as these indices reflect the ‘worst’ of 2023. Being up a modest single digit return is not tragic, yet we have come to expect more. When the selling hits hard the R2K really moves the rest of the market.
A rather wide range for the indices that is starting to narrow. Stocks continue to find some comfort under the 4,500 level on SPX 500, but the Russell 2K is threatening to break down through strong support at 180-182. These are important levels.
The Internals
What’s it mean?
One would think looking at the internals that the markets were hammered. That was not the case though, as VOLD dropped sharply as did ADD, which we often find on a down day. Put/calls, that’s the standout here – up to 1.13 as put buying was elevated. If that continues we will see more unnoticed selling (unexpected).
Ticks were red most of the day, concentrated selling. Going into a big expiration this is not what the bulls had in mind.
The Dynamite
Economic Data:
- Thursday: PPI, jobless claims, Retail Sales, Business Inventories ECB rate decision
- Friday: Import/Export Prices, Empire Manufacturing, IP and Cap Utilize, Michigan Sentimen t
Earnings this week:
- Thursday: KFY, ADBE, LEN
- Friday:
Fed Watch:
Several Fed speakers out last week reiterating their hawkish views, though a couple may have hinted the Fed is much closer than everto ending rate hikes. That simply means the economy and monetary policy will be in a new phase of tightening, and that could last awhile longer. No Fed speakers this week as the committee members enter a quiet period. Currently about an 8% chance of a hike at the Sept 19th meeting, but the market is pricing in 2 hikes slightly by the end of 2023.
Issues/Stocks to Watch this Week
Apple – The company’s latest event called Wonderlust starts Tuesday, and it is assumed they will unveil their latest iPhone creation, new watches and perhaps some other new products. Always something to watch.
Inflation – The headline reading for August is expected to be quite high, a 9.5% annualized rate. That is unacceptable, but is mostly driven by higher energy and food prices. Core levels are still elevated though and should remain so. These numbers will be important before next week’s Fed meeting.
ECB – The central bank of Europe will have their rate meeting this week, they have been aggressive with policy in trying to rein in their high inflation. They are likely to raise rates at least once more before the end of 2023.
