Freepik

The Fuse

Equity futures are marginally higher as volatility remains benign. Indices are trying to follow through from yesterday’s fairly strong performance. The SPX 500 still has the old highs in sight.

Interest Rates are modestly lower across the curve but are rather stable. The yield curve is highly inverted now between the 2 and 10 year because the market is pushing the Fed for rate cuts in 2024, several of them. While the committee DID state in the projections next year they see that coming, it’s just not as fast as the market would like, and that sets up potential disappointment.

Bank of Japan had a rate meeting and left their policy in tact and gave no hint on when negative rates will end. Nippon Steel agreed to buy US Steel, oil prices are modestly lower while gold is slightly up. The Dow Industrials notched another record high Monday though it was barely seen. The Stoc market is on a 7 week rally and is looking to extend that streak into a three day holiday.

Earnings this morning from Accenture were strong with a nice beat and reaffirmed guidance. Later tonight we’ll hear from FedEx and get a good read on how the holiday shopping season is going.

Strong price action all day long for the SPX 500 and Nasdaq which led the way to new 52 week highs. These big cap names were the beneficiary of big money flows all session long, oil also contributed to the party with a solid gain near $73 per barrel on WTIC. Some believe this strong market is turning into a bubble and that is hard to argue, but when fueled by Goldman Sachs for instance, who sees big rate cuts and higher stock prices in 2024, it is also understandable why the crowd wants in now.

Breadth was poor Monday as the broader market seemed to take a bit of a breather. Tech stocks, specifically those FANG names were mostly higher on the day save for Apple, which fell on some news about iPhone sales weakness in China. No matter, stocks consolidated after a pretty strong week, due for a rest before the last few trading days of 2023.

Volume was sharply lower across the board as we would expect to see on a day following Friday expiration. Certainly an up session on lower turnover is not a positive sign and could lead to a ‘turnaround Tuesday’ here (so, down since the markets were up yesterday). The Industrials and Russell 2K had the lower volume readings today, no surprise they have been the strongest indices for about six weeks now.

The SPX 500 is on a mission and that is to make a move on the old highs from 2022. As mentioned last week there is little resistance in the way now of that objective, yet 4,800 might be a small bump in the road if the markets are overbought at that moment. Still, less than 2% away from the mark and with plenty of time remaining in the year it might just happen. However, that will be a SELL THE NEWS EVENT.

The Internals

What’s it mean?

Internals gave us little to explain the market action yesterday. VOLD was barely moving as was the ADD, while VIX rose slightly and the TICKS were pretty evenly distributed across the board, but heavier in the Nasdaq. We should see better statistics later in the week.

The Dynamite

Economic Data:

• Tuesday: Housing Starts and Building Permits
• Wednesday: Existing Home Sales, Mortgage apps, Crude Oil Inventories
• Thursday: Jobless claims, GDP 3rd Q Estimate, Philly Fed, Leading Indicators
• Friday: PCE, Durable Goods, Michigan Sentiment, New Home Sales

Earnings this week:

• Tuesday: ACN, FDX
• Wednesday: GIS, WGO, BB, MU, LYV
• Thursday: NKE, KMX, CTAS, PAYX, AVO, AAR, CCL
• Friday: N/A

Fed Watch:

Some Fed talk on Friday caused many to take money off the table but the Chairman’s words Wednesday were pretty definitive. The committee kept rates in check and stated there was ‘talk’ of a time line for rate cuts. That spurred a slew of buying in stocks and yields fell sharply, the 10 year is now below 4% for the first time since August and its lowest levels since July. Truly amazing move lower but we may be at the far end of the move now. The inversion of the curve is extreme.
 

Stocks to Watch

Volatility – The VIX remains low, hovering near 12% and could even break LOWER this week by Friday (holiday coming up, volatility sellers are active).

Small Caps – The Russell 2K has been on fire lately, with yields falling sharply that means small cap names are getting heavy money flows. If rates don’t rise then the Russell 2K may finish the year strong.

Retail Sales – Last week’s report was pretty good but this is the last full week for shoppers to get ahead of Santa. Can the consumer pull it off once more?

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It’s Time To Dust Off Bull Market Strategies
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