DAILY DIARY
Volume Swings
- New York Stock Exchange volume hit 415 million shares, 11% below its one-month average;
- Nasdaq volume was 4.63 billion shares, 7% above its one-month average
NYSE Highs : 138 Lows : 5
Nasdaq: Highs : 259 Lows : 55
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$2.3 Billion to Buy on Close
$2.3 billion to buy market on close.
The Market and Economists
From Druck:
Howling About Housing
Wolf Street on housing:
"Residential Construction Gains Steam, Single-Family Starts Jump, Highest since Spring 2022, Multi-Family Rises from Ashes"
More Pot Holes
Expectations for cannabis reform legislation appears less probable.
Retail Money Market Accounts
I am now working on an analysis that debunks the (important) notion that retail money market accounts will be the next catalyst for the next bull market leg.
Stay tuned.
Fed Speak
12:49 (US) Fed's Bostic (voter in 2024): "We've come a long way on inflation, but still a ways to go even though the Fed has made tremendous progress."
- Pandemic policies left families and businesses in much stronger position; able to absorb restrictive policy
- Expects inflation to continue to come down slowly and unevenly
- Expects tight labor market to continue moving forward
- My outlook is for continued cooling in inflation and labor market
- Paying a lot of attention to 3-month and 6-month inflation figures; they are coming down
- Wages have been a trailing indicator, and a way to retain workers; want wage growth to cool but stay above inflation rate
- We have to keep an eye out to ensure output does not become too weak
- Business and employers still see the economy as strong, with robust demand
- Fed is in a good place, with a pathway to fixing inflation without too much pain in the labor market
- Businesses increasingly saying they do not have the same pricing power as early in the pandemic
- The Fed is 'not going to jump at the first data point'; Fed policy needs to be resolute and patient
- Sentiment about the economy may become more positive if wages gains continue to outpace inflation: eases 'sticker shock' of inflation
My Tweet of the Day
Programming Note
I have a lunch meeting between 12 and 1 pm.
A Ludacris Forecast
Currently S&P cash is +22 handles.
As you all know I occasionally make a Ludacris Forecast that equities - after being elevated - may reverse on a daily basis.
Usually I look very stupid in doing so - and I probably will again today!
Nonetheless, given the oversold and the emotional buying of equities over the last seven weeks, we could be close to a sharp reversal today.
Ludacris!
Oil Vey!
Crude is now +$1.15 after being -$0.75.
Energy stocks pick up a bid.
Interesting Observation
From Peter:
The Fed's Contradictions
Housekeeping Item
In the past 10 days the shares of Chewy (CHWY) have risen from under $17, where we purchased, to $23.23.
I have made some sales here.
Boockvar on Housing
From Peter:
Housing starts in November totaled 1.56mm, a large 200k more than expected and up from 1.359mm in October (revised down by 13k). Most of the upside came in the single family category as starts here rose by a 174k m/o/m to 1.143mm, the most since April 2022. Multi family starts were up by 27k m/o/m to 417k.
In contrast, the permit figure, the precursor to future builds, was about as forecasted at 1.46mm. Single family permits were up by 7k m/o/m while multi family starts fell by 45k to 484k and that is the lowest since October 2020.
Bottom line, it's hard to explain the one month pop to this degree in single family starts but we know that more supply has been needed and builders have been discounting their product. Either way, the permit figure was calmer and that is what is the leading indicator here. Also, as stated, there is a shrinking number of new multi family projects getting started.
That's both because there is already a huge amount of units coming on line in 2024, about 1mm, and deal numbers don't currently pencil out with slowing rent growth and the high cost of capital. In late 2025 and in 2026, rental growth is going to spike again I believe. We are long a few apartment REITS, acknowledging a rental pricing challenge in 2024 but a brighter one past that.
Single Family Starts
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Single Family Permits
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Multi Family Permits
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Sir Arthur Holds Court
From Arthur Cashin:
The stock market traders were not necessarily attracted to Adams New York # 1licorice gum as much as they were busying chewing on the strongly overbought condition that lingers after seven weeks in a row of up moves in the key indices that were given a major booster shot by the Powell press conference after the FOMC announcement. They did wind up chewing on the overbought thoroughly with the averages again managing to close on a plus tick, but it was neck and neck, down to the final minutes of trading whether the Dow would be able to carry forward and get into the plus category by the closing bell. They did it, but it was, as they say in horseracing, just by a nose.
The market was reassessing itself almost from the opening bell and they remained somewhat iffy. Not so much in that they intended to rally, but watching to see if traders could maintain the plus ticks after using up most of the new money for the new month and with us getting close to year-end. We had a great many self-styled pundits declaring the Santa Claus rally was in full effect. As I pointed out several times recently, the classic Santa Claus rally is the final five trading days of the year and the first couple of days of the New Year in trading, but you cannot penalize them for style points, if they want to call whatever the rally looked like as a new Santa Claus rally. We talked about the market self-examination in this early afternoon update:
Early Afternoon Update 12.18.23 - After ticking just below 3.90%, the yield on the ten-year began to inch back up toward the psychological 4% area. That seems to have been enough to have some of the bids begin to fade and the morning rally faded a bit behind it. It will be important to see if the bulls can hold on to the rally. They are overbought and entitled to certainly a rest if a not minor pullback. So, we will continue to monitor the yields, but geopolitical headlines are heating up a bit, but so far, no direct impact on the equity market. With geopolitical heating up, please remember to stay safe. In the meantime, please stay safe.
As I say, after we got deeper into late trading, it was becoming more and more of a nail biter to see if they managed to hold the plus ticks into the bell. As I previously said, it was by a nose and only conclusive in the final sixty-seconds of trading. So, we should now pause as we normally do to see what our cousins offshore did in reaction to what happened in New York along with what overnight developments they are seeing during their trading.
Overnight, global equity markets appear to be leaning to the upside, although I beg your indulgence one more time as my equipment is yielding somewhat spotty details so we will have to write another strong note to Santa. In the meantime, with the Bank of Japan appearing to stick pretty much with its somewhat extra easy policy, we saw that Japan closed up about 280 Dow points and Mainland China was up only fractionally, however. Hong Kong was up 260 points in the Dow. India closed up fractionally.
The European markets are also leaning to the upside. The U.S. economic calendar for today has Housing Starts and Building Permits early on. Around midday, we will see Atlanta Fed's Bostic come to the microphone then we will not get much other detail till the close when we get the Treasury Capital Swap data and Goolsbee will speak after the close, but he did not say much that was market moving yesterday.
The market is overbought. The rally looks like it may be starting to run out of fuel. It has been one heck of a run and it certainly is entitled to slowdown. Equity futures before the opening indicate a mild uptick on the bell. We will see if they held onto it as we move through the day. So, the bulls continue to have control of the ball, but they may need to get to the sideline and get some oxygen. We will wait and see if that hint of exhaustion in the rally develops any further.
For now, as I say, the bulls still maintain control of the ball and you know the current drill. Given what is going on in the Red Sea and the Middle East, stay close to the newsticker.
Keep your seatbelt fastened. Stay very nimble and alert and we will very carefully try to analyze the markets technicals and internals. Given the general headlines, as I say, it is important to stay safe.
Contributor Comment of the Day
From "Meet" Bret Jensen:
The Fed's 'pivot' might not save CRE in 2024 dept...
"A new paper from four economists at the National Bureau of Economic Research argues that 14 percent of the $2.7 trillion commercial real estate loan market - and 44 percent of office loans - currently carry outstanding loan balances higher than property values and are at risk of immediate default. The paper also calculated that a 10 percent default rate on all CRE loans could trigger up to $80 billion in bank losses and dozens of potential bank failures."
Selected Premarket Movers
Upside
- (CGEN) +168% (Gilead and Compugen announce exclusive license agreement for novel pre-clinical immunotherapy program)
- (TFFP) +19% (positive initial data from ongoing phase 2 trials of TFF VORI and TFF TAC)
- (ALDX) +15% (positive top-line results from a Phase 2 clinical trial of ADX-629)
- (OTLK) +6.1% (submits Special Protocol Assessment (SPA) to FDA for Non-Inferiority Study of ONS-5010)
-KVUE +5.1% (strength attributed to positive ruling in ongoing product liability litigation)
- (MYNZ) +4.7% (Mainz Biomed and Bantleon partner to elevate corporate health with second phase of CRC Screening Program for employees)
- (CHWY) +3.0% (Jefferies Initiates CHWY with Buy, price target: $27)
- (LQDA) +2.9% (prices 3.49M shares at $7.16)
Downside
- (TCBP) -19% (to sell 1.8M ADSs at $2.00/ADS)
- (INMB) -15% (provides update regarding Global Alzheimer's Phase II Clinical Trial and Clinical Hold Issued by the United States FDA)
- (BLUE) -13% (files to sell public offering of $150M in common stock)
- (CONN) -8.8% (earnings)
-MAMA -5.4% (files to sell public offering of 5M common stock by Selling Stockholders)
- (PLUG) -5.0% (Piper/Sandler Cuts PLUG to Underweight from Neutral, price target: $2.30 from $6.50)
- (FCEL) -4.6% (earnings, guidance)
- (SEEL) -3.1% (files $250M mixed shelf)
The Book of Boockvar
From Peter:
Just when you thought the BoJ couldn't be any more dovish and that it was time to finally exit NIRP, they are redefining the word 'patience' as Governor Ueda said he needs more time and while nothing was expected overnight, some of us thought the table would be set for January or soon after. No table was set but Ueda also didn't rule out creating one. JGB yields fell, the yen is getting slammed and the Nikkei was up 1.4%.
As for not ruling anything out in the meetings in early 2024, Ueda said "The probability of the economy achieving self-sustaining inflation is increasing" but "we still need to scrutinize whether a positive wage inflation cycle will fall in place." Also, "Most policy board members are of the opinion that they need to observe the situation for a little longer." So close but yet so far?
Confusing the situation in trying to figure out what they will do is while core CPI (just ex food) has been above 2% since April 2022, Ueda said "we have yet to foresee inflation sustainably and stably achieving our target. As such, it's hard to show now with a high degree of certainty how we can exit." The only reason logic doesn't apply here is that the BoJ is apparently afraid of upsetting the financial situation of the Japanese government by raising their funding costs on a debt to GDP ratio of 250%.
The JGB rally helped European and US bonds today.
Intraday Yen move
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In an interview with BNN, the Governor of the Bank of Canada, Tiff Macklem late yesterday said they will likely cut rates next year, confirming what has been priced in but said they need to see "a number of months" of decelerating inflation before they consider when. There wasn't much of a market response as the CAD is little changed as are short rates.
As sentiment always follows price, now everyone is piling in to stocks as this was an interesting stat from a Bloomberg News story, the SPY ETF on Friday took in $20.8 billion, "the biggest inflow since the fund's inception in 1993. According to Bloomberg Intelligence, it was the largest one-day flow for any ETF."
Friday was also the day that the CNN Fear/Greed index moved into the 'Extreme Greed' category, rising to 80 intraday, the highest since July. It closed yesterday at 77. It was 67 one week ago, 58 one month ago and 39 one year ago.
The beauty but also curse for those who choose to use Buy Now, Pay Later is because a credit card is not used, their credit rating is not at risk if they don't pay. And when you hear that people are using this service just to pay for their weekly groceries, you know some are very stretched and something we heard time and again during retail earnings season. The article in the WSJ yesterday on BNPL, they mentioned a stat I didn't see a few weeks ago from Adobe Analytics, that "Over Black Friday and Cyber Week, such payment plans accounted for 7.2% of all online sales, a 25% jump from last year" and also a big reason for the drop in credit card usage. Also, according to LexisNexis Risk Solutions said the article that 25% of "all American adult consumers have used Buy Now, Pay Later loans."
Now these loans can see anything from a zero percent interest rate and up to 36%. That compares with 23% for the average credit card according to the Fed. The article highlighted Paden Brown, a truck driver from Texas who uses Affirm to buy groceries and household essentials. "A recent bill at Walmart was roughly $465, and Affirm offered him a choice of three payment plans. He chose a six month loan with a 36% interest rate that didn't require a down payment. He has also used the service to buy nearly $4,000 of gaming equipment and $1,100 in tickets to WrestleMania events, both on interest free payment plans with longer timelines."
Bottom line and why I brought this up, when you see a retail sales figure, either from the government or from a retailer, dig deeper into the headline number and understand that BNPL is becoming a big factor in sustaining sales for some. That said, it's clearly the tale of two consumers as those with savings are benefiting greatly from generous interest income that a high fed funds rate is providing, particularly the boomers, while those that aren't are living on payment plans for many of their expenses.
The only thing data wise of note overseas was the UK CBI industrial orders index that I like to follow. The December print was -23 but up from -35 in November and was 6 pts better than expected. CBI said "Manufacturers reported that output volumes were stable during the final three months of the year - the first time output hasn't fallen since the quarter to July 2023." Their chief economist was quoted as saying, "UK manufacturers appear to have ended the year on a stable footing" and "Selling price expectations are the weakest they have been in two years, reflecting ongoing improvements in supply conditions and soft demand."
As for what 2024 might bring, "The environment for UK manufacturing is likely to remain challenging, with global growth set to remain weak in the year ahead. High interest rates will continue to weigh on household spending, while adding to business costs. And sticky domestic inflation and strong wage growth suggest cuts in UK interest rates are still some way off." We still like UK stocks and are long some of them. The FTSE 100 has badly lagged this year, up just 2.2% and trades at 10.8x 2024 eps estimates with a 4.3% dividend yield because of its heavy weighting in commodities and financials and little tech.
UK CBI
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Words to the Wise
Bob Farrell's Market Rule #5:
"The public buys the most at the top and the least at the bottom."
Chart of the Day (Part Deux)
This chart demonstrates the risks associated with continued strong consumer discretionary spending in the time ahead:
Tweet of the Day
Many have forgotten how bad the S&P fared from January 2022 to October 2022 -- the last time investors were heavily overweight equities:
More Night Moves: A Detailed Look at Overnight Futures and Why/What Markets Are Moving
* The quality of the advance (again!) was poor with breadth weak and narrow leadership in the Mag7:
* Sentiment follows price and investor sentiment remains optimistic with the S&P Short-Range Oscillator still an elevated 4.51% (up small from previous day of 4.45%) -- but sentiment has not proven to have been a good timing tool!
* This morning the decline in crude seems temporarily stalled (-$0.10) and yields continue lower (-4 bps)-- stock futures have a modest bid (at 5:15am)
* It feels, to me, that nearly everyone is in the pool now:
* Up, up and away -- holding Tom Lee and Dan Ives' hands:
Up, up and away
My beautiful, my beautiful balloon
Balloon
Up, up, and away
-- The Fifth Dimension, UP UP AND AWAY
"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible."
- Wally Deemer
"Workin' on our night moves Trying to lose the awkward teenage blues Workin' on our night moves In the summertime And oh the wonder Felt the lightning And we waited on the thunder Waited on the thunder."
- Bob Seger, "Night Moves"
This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!
The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading hold for me here. It is a guidepost to my strategy in the regular trading session. Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid and (2) it seems fear and greed are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.
Here are brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:
* Stock futures were modestly higher throughout most of the overnight session in another remarkably narrow range. S&P futures peaked at +6 and bottomed at -8. Nasdaq futures peaked at +11 and bottomed at -27. At 5:49 a.m. ET, S&P futures were +3 and Nasdaq futures were +8.
And...
* Overnight, the inversion of the 2s/10s Treasuries curve is slightly higher at -54. Real rates remain quite elevated; the 10-year is still about 1.7 (again in real terms).
* Commodities are mostly lower. Brent crude down $0.02 to $77.96.
* The S&P Short-Range Oscillator remains overbought at 4.51% v. 4.45%.
* The VIX remains under 13 at 12.50 (-0.06).
* The U.S. dollar is much stronger against the yen and down vs. sterling and euro.
* Treasury yields continue lower but are approaching levels where recession may be feared -- we may be at the point that lower rates will hurt equities (we will see)! The 2-Year Treasury yield is -2 basis points at 4.435% and the 10-Year is -5 basis points at 3.907%. Over there, the yield on the 10-Year U.K. Gilt bond is -2 basis points (after last week large global yield decline).
* Gold is -$2 at $2.039 after the recent spate of volatility.
* Bitcoin, is +$100 to $43.1k.
Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and/or did not read my Diary. The principal intent is to review the logic of my market moves and other factors:
Oh How They Forget How Wrong-Footed They (Strategists) Were!
Here were Monday's trades:
* Three New Shorts
* And all go on my Best Ideas (Watch) List (short).
Shorting (APO) $94.80, (KKR) $ 84.96 and (BX) $129.25.
For rationale, see my upcoming 10 Surprises of 2024 later in the day!
Charting The Technicals
"The public is often right during the trends, but wrong at both ends."
- Humphrey B. Neill
Bonus: Top Links
* Risk On
A Consumer-Led Slowdown/Recession May Lie Ahead
The adverse impact of the stacked or cumulative inflation since 2019 is at the core of my bearish market view:
Chart of the Day
A Wedbush Christmas List
From uber tech bull Dan Ives:
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