The Fuse
Futures are ripping higher this morning following the surprise fed announcement of a 50bps rate cut. Equity futures initially rose yesterday but reversed all the gains of the day but with volatility down today will be a different story.
Interest Rates are rising slightly this morning after the big fed rate cut, likely trying to put the yield curve into some balance.
Yesterday saw the inversion between 2/10 disappear but on some profit taking those bonds fell. We see that continuing today but don’t expect it to last much longer, there is a strong bid under the market for fixed income. Fed futures see three rate cuts to the end of the year, yesterday’s dot plot lowered their expectations to two more cuts.
Following news of the US Fed’s rate cut markets around the world have rallied sharply. Europe STOXX were up .8% on good volume, Japan opened higher and finished up 2.1% as Hong Kong pushed higher by 2%. Shanghai was up .7%, gold hovers above highs of 2,600 per out and crude oil is back above $70.
Stocks are poised to open substantially higher, at least two indices will be in record territory.
Earnings are out later today on FedEx and Lennar.
The Fed threw out a moderate surprise by cutting the funds rate by 50bps. It was only a surprise to those of us who thought a gradual move was likely, but Chair Powell seemed rather confident in the soft landing scenario coming to fruition. During the press conference, the Chairman was bold and determined, something we have not seen since he took rates to zero at the start of the pandemic.
/Breadth was positive on the day but it still feels like buyer exhaustion. Following the rate cut decision the markets zipped forward but with plenty of volatility in the air the sellers hit stocks rather hard after the market hit new highs. Oscillators jumped again and are approaching overbought territory. We often see the ‘real’ move happening a day or two later. New highs are still trouncing new lows.
Volume is starting to pick up, no doubt the Fed decision created some of the excitement. The range of the market widened out a bit as volatility expanded but the range seems to be contained within a 140 point SPX 500 area. We are also midway through the expiration week and that will definitely spur more turnover. Remember, we often see a hangover effect following expiration, that would be next week. Time to be careful.
Quite the range on the markets yesterday following the fed’s decision to cut rates by 50bps. The Nasdaq rallied up then down as did the SPX 500, which is contained by the Tuesday low. If that can hold and a run to intraday highs can be made, I would say the low is in for now. Only problem would be an overbought condition, which might be reason to ‘sell on the news’.
The Internals
What’s it mean?
Without a doubt the buyers are getting exhausted. The streak of seven gains in a row ended with a flurry, the internals not great all session long but finished near lows on the session. VOLD and ADD collapsed like a cheap suit late in the day, several sell programs hit the tape after the Fed announcement. That means more downside could be in store today. But largely ticks were even, the VIX did post a gain while the put/call was down. Mixed offering for sure.
The Dynamite
Economic Data:
- Thursday:Jobless Claims, Philly Fed manufacturing, existing home sales, leading economic indicators
- Friday:N/A
Earnings this week:
- Thursday:DRI, CBRL, FDS, FDX, LEN, MLKN, SCHL
- Friday:N/A
Fed Watch:
It’s time for the Fed meeting this week, and all bets are on that we will see the first rate cut in four years since dropping the rate to zero to counter the aftermath of the covid pandemic. With supply chain issues and a flood of money in the system it was difficult to fight off inflation trends, but they are winning now and see a clear path towards a soft landing. The market is ahead of the Fed though and that could mean a sell on the news if they are not given what is expected.
Stocks/Issues to Watch
Federal Reserve – It is widely expected the Fed meeting will conclude embarking on a new and dovish interest rate policy. After nearly 15 months of extreme tight policy it seems the Fed is ready to loosen, but not as aggressively many would believe. Let’s watch the fed futures respond.
Options – A big expiration and rollover is upon us this week. We often see quite a bit of movement with futures and volatility during this triple witching time, let’s see if there is some opportunity to trade it.
