We have arrived at Wednesday – Hump Day – and so far “the market” is up 0.4% for the week, only the market hasn’t gotten over the consolidation hump. information technology, consumer discretionary, and communication services — are up for the week.
You know what the commonality is between those three sectors? They all house mega-cap components, which have been the difference for “the market” this week.
After today’s close, the mega-cap stocks will either sink or swim based on the response to NVIDIA’s (NVDA) earnings report, and what they do — sink or swim — will make a key difference for “the market” and the market over the remainder of the week.
Modest gains in the mega-cap space have provided some underlying support for the equity futures market along with a drop in Treasury yields. The 2-yr note yield is down three basis points to 5.01% and the 10-yr note yield is down five basis points to 4.28%.
The catalyst for the drop in yields seen overnight was a batch of preliminary August PMI readings out of the eurozone that was on the soft side and very much in the contraction zone of sub-50.0%. The connection for traders is that this weak data could influence the Fed’s decision to remain on hold with its policy rate and compel the ECB to stay put with its lower policy rates.
Accordingly, there is some strength in the U.S. Dollar Index (+0.4% to 103.95) as the euro trades down against the greenback (EUR/USD -0.3% to 1.0804).
The strength in the equity futures market isn’t Atlas-like. It’s more like the 98-pound weakling.
The S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 25 points and are trading 0.1% above fair value.
In other words, don’t expect much strength in the market at today’s open. To be sure, it is not exactly a rally point that Treasury yields have come down because the PMI data out of the eurozone was weak.
Something else that was weak was the weekly mortgage applications index. It declined 4.2% with purchase applications down 5%, hitting their lowest level since 1995, and refinancing applications down 3% with higher mortgage rates and low supply crimping demand.
On a related note, the July New Home Sales Report (Briefing.com consensus 701,000; prior 697,000) will be released at 10:00 a.m. ET.
Homebuilder Toll Brothers (TOL) released better-than-expected quarterly results and raised its full-year delivery guidance after yesterday’s close, and is up modestly in pre-market trading. Several retailers also released earnings results that have been met with mixed responses.
The biggest downer was Foot Locker (FL). It met expectations, but cut its FY24 EPS guidance by a large margin in response to softening demand and paused its dividend. Shares of FL are down 30%. That move stands in stark contrast to Abercrombie & Fitch (ANF), which is up 16% after blowing past Q2 consensus estimates and providing better-than-expected revenue guidance for Q3 and FY24.
Kohl’s (KSS), Bath & Body Works (BBWI), Peloton (PTON), Urban Outfitters (URBN), and Advance Auto Parts (AAP) are some of the other retailers that released results.
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Originally Posted August 23, 2023 – Getting a line on “the market” and the market
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