The Fuse

Equity futures are moving higher this am as a continuation from Friday’s huge day is underway. Last week the SPX 500 soared and exceeded all time highs and is making a run towards 4,900 and beyond.

Interest Rates are falling on the long end of the curve as inflation expectations continue to drop. That is a confidence-builder for the Fed in terms of crafting monetary policy.

Ron DeSantis dropped out of the race for President this weekend, oil prices are moderately higher along with gold. US authorities say more Boeing 737 MAX planes should be checked after last month’s incident. AI fueled the surge in stocks last week along with positive earnings outlook from TSM. Tesla’s earnings will be watched closely on Wednesday evening. New highs for the Nasdaq and Dow Industrials as well as the SPX 500. Fear of a down market remains low.

Earnings will be in focus this week as tonight we hear from UAL, LOGI, ZION and a few other regional banks. Tomorrow am we have 3M, GE, JNJ, RTX, PG and DHI along with LMT. Plenty of big earnings are out later in the week.

A heavy dose of earnings and important economic data is on tap for this week. In what is usually a challenging time for the bulls, last week’s pop on higher volume was a signal that the bulls are not finished. Some biotech conferences are coming up soon.

Breadth was curious. After getting pasted in the first couple of hours amid a weak Russell 2K, the buyers came back in and turned breadth on its head. From a 2-1 negative to a 2-1 positive it was an amazing session. Certainly by midday there was no telling how strong the buying would be and likely short sellers were stung by a constant stream of buy programs. This indicator is still on a sell signal but will turn upward with a few more positive days.

Volume was very high especially during the last couple of hours. A big options expiration helped guide the turnover but make no mistake – whatever the reason it is very bullish to see strong turnover with indices hitting all time highs. That happened Friday with SPY, QQQ and DIA. Buyers that poured money into their 401k plans to start the year and getting the benefit now.

A bold move by the indices on Friday pushed the SPX 500 and other indices to new all time highs. It’s been about two years since we have said that about the ‘500, and back then with rates at zero and inflation starting to rage it was certainly evident of a top. This time around may be different, but markets are showing strong momentum following a solid 2023. That doesn’t mean it makes sense, it simply means buyers are coming on strong again. Support this week is at 4,800.

The Internals

What’s it mean?

As we saw earlier in the week there was some back n’ forth action with poor volume and price moves early in the day followed by strong buying in the last couple of hours. That was the situation on Friday too that helped push the spx 500 and other indices to new all time highs. The VOLD was strong after a slow start, the VIX and put/call declined sharply Friday but the TICKS remain very bullish. Look at the concentration of green arrows, a slew of buy programs all day long with nary a sell after midday. It’s very bullish action.

The Dynamite

Economic Data:

• Monday: Leading indicators
• Tuesday: N/A
• Wednesday: Flash PMI, crude inventories
• Thursday: Jobless claims, durable goods, GDP Q4 first look, new home sales
• Friday: PCE for December, Pending home sales

Earnings this week:

• Monday: UAL, LOGI, ZION
• Tuesday: MMM, VZ, GE, HAL, JNJ, PG, DHI, NFLX, ISRG, TXN, STLD, SYF
• Wednesday: ASML, T, GD, ELV, KMB, SAP, STX,LVS, CSX, IBM, LRCX, URI, TSLA, NOW
• Thursday: AAL, ALK, LUV, HUM VLO, DOW, UNP MKC, MBLY, NOC, SWH, INTC, KLAC, SBUX, VFC, V, COF, TMUS LHX, WDC
• Friday: AXP, CAT, CHD, CL, NSC

Fed Watch:
The FOMC heads into a quiet period before their first meeting of 2024. All eyes will be on the data coming out this week especially first look GDP from Q4. Some comments last week by committee members were meant to temper the excitement over a dovish policy. Members have argued it is far too early to think quick and large rate cuts are coming. If data this week shows the economy is still strong the committee is likely to ratchet back cuts even more. As of now it looks like 2-3 in 2024 but that could clearly change at any moment.
 

Stocks to Watch

Market Indices – The SPX 500 with a new all time high tagged on Friday was impressive, but the bulls would like to see a follow through week.

Technology – The first big week of earnings for tech names such as Intel, IBM and Netflix. These stocks have shown good relative strength the past few months but will they say enough to keep prices elevated?

10 year yield – Don’t look now, but the 10 year has quietly moved back above 4% this past week. That is not much cause for concern yet, especially if inflation is contained over the next few price index reports. But certainly lower yields will help small cap stocks, the one index that is negative in 2024 and about 20% away from all time highs.

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