The Fuse
Equity futures are falling this morning the day after one of the worst sessions in 2024. Yesterday stocks fell more than 1.5% on heavy turnover as inflation continues to weigh heavily. Futures were down quite a bit more overnight but have rallied some off those lows. Still, today could bring some violent moves.
Interest Rates are slightly higher today as bond holders get ready for a new policy statement from the Fed. The 2 year yield has moved back above 5% as this bond signals the committee is less likely to cut rates than previously predicted. Inflation readings continue to show the FOMC should keep rates higher for longer, and if so bond investors will shy away.
Yesterday’s market pasting was at the hands of inflation and potentially slower growth. The employment cost index rose more than expected last quarter while Chicago PMI was much weaker. We’ll be watching ISM closely this week along with productivity/labor costs. The US dollar has resumed its rise, gold yesterday was hammered as was silver, crude oil is retreating below $81 as well. Other commodities are lower and have been trending downward. Euro bonds were closed for the May 1 holiday, Asian stocks dipped, the Nikkei down .3%.
Earnings were big last night with a nice beat from Amazon and Super Micro, but the latter gave disappointing guidance. Starbucks also missed and lowered guidance, AMD is falling on poor earnings while this morning a beat from Pfizer but huge misses by Estee Lauder and CVS. Later today Qualcomm, Devon, Etsy and Devon Energy.
A nasty day that started out poorly and just got progressively worse. It is hard to say what the trigger was but certainly we don’t need any particular reason for a sell session to commence. Market volatility is here to stay and along with that comes opportunity. The challenge, of course is are you able/willing to change with the market conditions? Can you change your style of trading to reduce risk when you need to most.
Breadth was totally awful all session long, nearly 5-1 to the downside as economic data showed hot inflation. The ECI came in poorly while Chicago PMI was weak, so poor growth and weaker productivity along with higher job costs makes for a toxic mix for the stock market. Sellers really took advantage here and laid off risk, we’ll see if that continues on Fed day.
Heavy volume to the downside here as the SPX 500 was rejected at the 20 day moving average. That was achieved on lower volume, so we really had very little conviction. We talked about that recently as a major concern that could come back to haunt the bulls, and that happened yesterday. At this point, with uncertain news coming out in the next few days most investors will take a more cautious approach to risk.
Painful day of trading if you were bullish. The SPX 500 fell like a hot knife through butter under the 5,100 level, Nasdaq also breached 17,600 on the close, an extremely bearish day for the markets. There were simply no upticks, no buyers had any interest. The Industrials closed again under 38K, that level is going to be resistance. Support on the SPX 500 might be at last week’s lows around 4,967 but it might not hold if there is an avalanche of selling.
The Internals
What’s it mean?
What a poor finish to the month, the internals really tell the story of what happened. I draw your attention to VOLD and TICK/Q (top left, top right). These magnify what happened, heavy sell programs, heavy volume to the downside. It was a nightmare for the bulls, ADD hit low levels, VIX climbed but only rose up about 6%. Another poor day like this will knock the bulls for a loop.
The Dynamite
Economic Data:
Wednesday:ADP, SPX global PMI, ISM, JOLTS, construction spending, FOMC rate decision
Thursday:challenger job cuts, jobless claims, productivity and labor costs, factory orders
Friday:NFP report for April, ISM non-manufacturing, SPX global PMI
Earnings this week:
Wednesday:DD, EL, MA, WING, YUM, BZH, CF, CTSH, FSLY, MGM, QRVO, QCOM
Thursday:CMI, CYBR, IDCC, LIN, PH, UTZ, VMC, AAPL, SQ, NET, DLR, FTNT, HOLX, MSI, OLED
Friday:FLR, HSY, XPO
Fed Watch:The third Fed meeting of the year as the committee grapples with higher inflation. That has been the case since the start of the year, a pretty frustrating situation for the committee. We have heard from several members there is no rush to cut rates. We may hear something from Chair Powell Wednesday to this effect. Fed futures are pretty much saying no more than one rate cut in 2024.
Stocks to Watch
Amazon – Earnings are out this week and the mega cap is looking to deliver another home run. The stock is well off the all time highs (10%)but could make a big run if investors appreciate what they deliver.
Federal Reserve – Big meeting again as our eyes/ears will be focused on Wednesday’s statement and the follow-on press conference. The committee is unlikely to move rates at this meeting but the tone may be more hawkish.
Employment – April’s job report is looking to be down from March, but only modestly. It has been the job market that has held the economy together, if it starts to falter the Fed may have to step in with some rate cut discussion.
