The Fuse
Equity futures are getting pounded in a continuation of the selling from Wednesday. The Fed statement was not friendly and with another hike on the table this year suddenly investors are having to re-establish their end of year forecasts. That said, the market is in a corrective phase and is not nearly oversold yet.
Interest Rates are rising today as the pressure from higher inflation and more supply continues to weigh on bonds. Sellers are all over every maturity. TLT (long bond ETF) is going to open near the lows in August.
The news from the Fed was not positive. A hawkish statement though no movement in rates was worse than anyone could imagine. Higher rates for longer, another hike coming and cuts are not going to be in the forecast for months if not years. The stock market is reflecting the sentiment.
Pretty good earnings but weak sales from FedEx last night and a positive outlook has this stock looking strong today. Darden beat but is guiding their quarter lower.
The Fed came and went, delivered what was expected and as usual the markets were disappointed. What was surprising were the changes made in the projections, with a downgrade in unemployment and higher rate by year end (and for longer). Rates are on the rise and will stay elevated for some time.
Breadth was positive most of the day until the Fed came in to crash the party. Another day of selling, a distribution day and many more new lows on the day that we are obviously in correction mode.
More high volume selling, and that is going to be a problem for the bulls. We pointed out yesterday the heavy numbers for new lows, and this has occurred on bigger turnover. Until the selling stops, and we are in a seasonally weak period then we could expect to see lower prices ahead.
It wasn’t a break but it sure felt like one. The indices are in a wide range, but the Nasdaq is pushing towards the 100 day moving average, and that may get tagged this week. At this point it is safe to say the market is in a correction, so protection is of the utmost importance.
The Internals
What’s it mean?
Horrendous day that really got worse following the Fed statement and press conference. The VOLD got slammed down as did the ADD and ADSPD, nearly a trend down day. The VIX soared and closed above 15%, while the TICKS remained concentrated in red. There is nothing else to explain the selling rather than investors are eager to move to the sidelines.
The Dynamite
Economic Data:
- Thursday: Jobless claims, Philly Fed Index, existing home sales, leading indicators
- Friday: GlobaL Flash PMI
Earnings this week:
- Thursday: DRI, MANU, RAD, FDS
- Friday:
Fed Watch:
Another important Fed meeting this week where policy changes will be discussed. The latest readings on inflation cannot be encouraging to the committee, but still the Fed Futures market is expecting another pause in their hiking campaign. It’s hard to think they would be less aggressive here, especially with a roaring economy that just won’t let up. The only positives the committee could see is maybe the jobs market is cooling down some. We’ll be paying very close attention to the new economic projections.
Issues/Stocks to Watch this week
Market Volatility – We have a big fed meeting this week and the market is sanguine. Therefore, it sets up for some surprises, so be ready for them.
Tesla – The EV car maker may have a slight advantage here as the UAW strike starts and hits Ford, GM and others. The company has been cutting prices lately to reduce inventory and that will hit their margins, but the stock is bouncing around in a range. Not horrible yet.
Dollar – The greenback has been remarkable this year, the best performing currency by far. We’ll be watching for a peak and turnaround if the Fed is much less hawkish in their statement and projections.
