The Fuse

It’s going to be a busy session with Fed decision day in the afternoon and PPI this morning. Futures are up modestly so far, expanding on yesterday’s up session as the SPX 500 makes a journey towards all time highs.

Freepik

Interest Rates are modestly lower this morning as bonds are rallying back up towards high levels yesterday. Recall when the CPI was released sparks were flying as bond yields fell sharply then rallied back up and now are gently on the decline. We should see some bigger moves down the road following today’s Fed meeting.

It’s all about the Fed meeting today, the press conference and the economic projections. The committee is very likely to stand pat on rates at this meeting but also may continue the ‘higher for longer’ mantra and threaten more rate hikes if inflation starts to rise again. The retain maximum flexibility, and of course if inflation starts moving toward its target of 2% then rate cuts may be in order, but that is far too premature.

The earnings calendar was light overnight but after the close today we’ll hear from Adobe and then tomorrow am Jabil and the Knot.

Stocks rallied all session long Tuesday after putting in a low in the first ten minutes of trading. Following the benign CPI report mild selling hit but the buyers stepped to the plate to take a swing, and markets now stand as high as they have been for nearly two years.

Breadth was not great for a second straight day but the price action was pretty solid. In fact, breadth finished negative and that pulled down the McClellan Oscillator for a bit, however we may see that change later in the week. Stocks are moderately overbought but some indicators are not, but the VIX is certainly showing complacency is high.

An accumulation day for the SPX 500 and Nasdaq helped pace the action for the bulls. A solid turnover day, better than the prior day is the definition of accumulation, or institutional buying. For a breakout to be sustained you like to see it happen on strong volume, and that is what we have here.
Sure, you could argue the markets are overbought and white hot but trying to get in front of a strong momentum move could prove fatal.

The confirmed move above 4,600 remains in tact and suddenly the old highs don’t look so far away. That level is at 4,818 on the SPX 500, a short 3.8% distance from current levels. We think that could be tagged before year-end and quite possibly before Christmas. Be on guard however for pullbacks, the next level of support comes in way down at 4,500.

What’s it mean?

It’s hard to explain how poor the internals were with the strong price action in the markets yesterday. Some days we just cannot explain it and must accept the results. Breadth was bad, look at the low in the VOLD and ADD, while even VIX was higher. Ticks were mediocre at best, yet the markets finished near their highs. This is what complacency is along with seasonal trends blowing bullish.

The Dynamite

Economic Data:

• Wednesday: PPI, mortgage apps, FOMC decision/press conference
• Thursday: Jobless claims, retail sales, biz inventories, import/ex prices
• Friday: Empire Manufacturing Index, IP and cap utilization, S&P Global PMI

Earnings this week:

• Wednesday: REVG, ADBE, NDSN
• Thursday: COST, LEN, REGN
• Friday: DRI

Fed Watch:

It’s the last Federal Reserve meeting of the year and markets are not expecting rates to move at all. We will have some projection materials this week from the committee along with another press conference from Chair Powell. In all likelihood the committee will be far more reserved than what the market wants, and that could be considered a disappointment. Look for quite a bit of volatility before and after the meeting.
 

Stocks to Watch

Federal Reserve – This is the last meeting of 2023 and the hope is the committee is more likely to end rate hikes in 2024. No hike or cut is expected this week.

Interest Rates – They say the bond market has been doing the Fed’s job. Yet, the market is now pricing in five 1/4 point rate cuts in 2024. They may be way ahead of themselves and the Chairman may throw some cold water their way.

Retailers – We are only a couple of weeks from the Christmas holiday and shoppers remain active. But as the time gets near supplies run short and stock (inventory) is hard to come by. So far it seems to be a solid shopping season.

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