Market Commentary
Stocks started off the week with optimism ahead of a flurry of corporate earnings reports over the next few weeks. Investors are clinging to further vindication of soft landing bets. Fixed Income markets are closed but the asset class has shown poor performance recently. The 10YR Treasury yield has backed up to 4% from 3.7% to start the month. Oil showed weakness to start the week after a strong start to the month.
Driving the equity rally were mega-cap stocks like Apple and Nvidia. Last Friday marked the unofficial kickoff to earnings season, and many analysts are predicting that S&P 500 companies will report their weakest results in the last four quarters. Despite this, expectations still point to a 4.3% year-over-year increase in earnings.
This week, all eyes will be on the consumer as the Retail Sales data is set to be released on Wednesday. Expectations indicate a modest 0.2% month-over-month growth, indicating subdued consumer activity. So far, the equity market has largely brushed off negative data, with the belief that the Fed will continue cutting interest rates to prevent a deeper economic slowdown. At the same time, positive data has been well-received, fueling optimism that it could lift corporate earnings. The key question is how the market will interpret this data and weigh its bets on the Fed’s ability to manage a smooth, controlled descent toward a soft landing.
We spoke last week about volatility climbing over the recent weeks given escalating geopolitical problems and the near-term US Election. Based on futures pricing, it will likely remain elevated over the next couple of months.
Our Newton models are suggesting a rotation back to domestic markets over their international counterparts. The Newton Delta of Emerging Markets is a negative 6, meaning over the last 3 trading sessions we have seen quick deterioration. On the flip side, domestic large caps are a positive 4. The sectors with the largest megacap exposure, Consumer Discretionary and Technology, are the strongest reads sector-wise while Utilities and Materials are at the bottom.
Economic Releases This Week
Monday: Bond Markets Closed. Federal Reserve Governor Christopher Waller Speaks.
Tuesday: Empire State Manufacturing Survey, Fed Governor Adriana Kugler Speaks
Wednesday: Import Price Index
Thursday: Initial Jobless Claims, US Retail Sales, Industrial Production, Home Builder Confidence Index
Friday: Housing Starts, Building Permits
Stories to Start the Week
SpaceX pulled off an enormous feat by catching the returning booster of its Starship rocket with mechanical arms.
The US is sending an advanced missile defense system and associated troops to Israel to help shield its ally from attacks by Iran.
The Mets, Yankees, and Dodgers are in the League Championship Series with the sport’s top 3 payrolls. The Guardians come in at 23.
China continues to announce more stimulus measures, putting investor patience to the test.
What is Newton?
Our Newton model attempts to determine the highest probability of future price direction by using advanced algorithmic and high-order mathematical techniques on the current market environment to identify trends in underlying security prices. The Newton model scores securities over multiple time periods on a scale of 0-20 with 0 being the worst and 20 being the best possible score.
Trend & level both matter. For example, a name that moves from an 18 to a 16 would signal a strong level yet slight exhaustion in the trend.
Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.