DAILY DIARY
Newtonian Mechanics
As I prepare to leave for the day it is clear, at least for this second in time, that the upwards force in motion is staying in motion.
Bond Market Update
Consider the magnitude of the drop in yields, the stock action is muted:
* The yield on the two year Treasury is +4 bps.
* The yield on the ten year Treasury is +6 bps.
* The yield on the long Treasury is +5 bps.
Housekeeping Item
I have covered most of my Warner Bros. Discovery (WBD) short - will reshort on strength.
My Tweet of the Day (Part Deux)
Minding Mr. Market
The bid for big tech continues this morning - as we position up for the important spate of EPS reports in the days ahead (starting with (AMD) and Mr. Softee (MSFT) tomorrow nite).
The market bended a bit this morning but has not broken.
Mostly doing primary research ahead of the 4Q profit reports.
I have nothing pithy to add.
Ain't This The Truth!
Market Breadth
In the early going, breadth is flattish:
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Trades
No trades since very early this morning.
Selected Premarket Movers
Upside
- (PALI) +114% (announces positive preclinical data of lead program PALI-2108 at the 2024 Crohn's & Colitis Congress)
- (SNCE) +21% (to be acquired by eMed at $5.75/shr in cash; provides guidance)
- (RNAZ) +20% (TransCode Therapeutics and Debiopharm announce collaboration to develop targeted nucleic acid therapeutics for cancer)
- (CDLX) +19% (announces successful resolution of SRS dispute, reports prelim Q4 results)
- (SOFI) +14% (earnings, guidance)
- (CANF) +13% (top scientific journal published positive data from the COMFORT-1 phase III psoriasis study)
- (REVG) +9.8% (divests school bus business and to reorganize into two reporting segments; announces special cash dividend of $3.00/shr)
- (MGRC) +9.2% (WillScot Mobile Mini Holdings confirms to acquire McGrath RentCorp for $3.8B at ~$123.00/shr either cash or stock)
- (ZIM) +8.6% (Jefferies Raised ZIM to Buy from Hold, price target: $20 from $14)
- (BOOM) +8.1% (announces review of strategic alternatives for its DynaEnergetics and NobelClad businesses)
- (GMDA) +7.1% (actively pursuing strategic alternatives)
- (BEAM) +6.1% (JPMorgan Chase and Co Raised BEAM to Overweight from Neutral, price target: $40)
- (ZI) +5.2% (Tier1 firm Raised ZI to Buy from Neutral, price target: $25 from $20)
- (OSG) +4.2% (confirms receipt of unsolicited indication of interest of $6.25 per share of the company that Saltchuk does not already own)
- (BLDR) +3.2% (Tier1 firm Raised BLDR to Buy from Neutral, price target: $410 from $327)
- (BEN) +3.0% (earnings)
- (DLTR) +3.0% (JPMorgan Chase and Co Raised DLTR to Overweight from Neutral, price target: $157 from $122)
- (ADM) +2.8% (said to postpone certain executive bonuses)
- (CCCC) +2.6% (JPMorgan Chase and Co Raised CCCC to Neutral from Underweight, price target: $6)
- (EOLS) +2.5% (Barclays Raised EOLS to Overweight from Equal Weight, price target: $16 from $10)
Downside
- (PBLA) -63% (prices 4.4M shares at $2.06/shr in $9.0M public offering)
- (IRBT) -20% (Amazon and iRobot agree to terminate pending acquisition citing no path to regulatory approval in the EU; iRobot to receive $94M termination fee and names new CEO, job cuts)
- (CKPT) -8.9% (files to sell 7.8M shares at $1.805/shr in $14M registered direct offering)
- (HOOK) -8.7% (provides update on business priorities and Oncology Partnership Programs, including Roche decision to terminate collaboration and licensing agreement for HOOKIPA's HB-700 program in KRAS mutated cancers; to reduce workforce by ~30%)
- (PHG) -8.2% (reports Q4 revenue, issues guidance; announces €363M provision and compliance agreement with FDA over a large-scale recall of ventilators)
- (CDNA) -7.8% (NTRA awarded $96.3M in damages after jury rules in favor of Natera in patent infringement lawsuit against CareDx)
- (KAVL) -6.0% (partner Bidi Vapor to contest FDA denial of 'Classic' Tobacco-Flavored ENDS)
- (BE) -5.9% (Tier1 firm Cuts BE to Underperform from Neutral, price target: $10 from $16)
- (VERA) -4.1% (files to sell $200M of common stock)
- (SNX) -3.1% (launches secondary public offering to sell 7.4M common stock and announces $160M share buyback)
- (WSC) -2.5% (to acquire MGRC for $3.8B at ~$123.00/shr either cash or stock)
- (ARLP) -2.0% (earnings, guidance)
Programming Note
I will be leaving to Los Angeles on Wednesday night for six days.
I will be posting during my trip, but remember...there is a three hour change in the time zone!
The Book of Boockvar
From Peter:
We enter the week and ahead of the FOMC meeting pricing in a 52% chance of a March rate cut according to the fed funds futures. If today's current economic and global situation still stands on that March 20th meeting I see NO chance the Fed cuts. Does the Fed really want to stimulate the demand for goods with shipping rates up 200% in a month (see chart below)?
Does the Fed really want to stimulate more demand with oil nearing $80 with major geopolitical hotspots flaring up? Does the Fed really want to stimulate the economy after the Q4 GDP print? Does the Fed really want to stimulate more euphoria in markets? I'll reevaluate thereafter as we get closer to the May 1st meeting and we see if there is further weakness in the labor market and if so, by how much.
I think on Wednesday Powell with his words will take out the possibility of a March cut. After that at his presser, what we really need to hear details on is what are their plans for the balance sheet. We of course have details on the Treasury's quarterly refunding program and while I have no doubt there will be political considerations again on shortening the maturities so as not to upset the long end of the yield curve, the shorter Janet Yellen gets with issuance, the possible quicker liquidation of the Fed's reverse repo facility takes place.
Then, the fate of QT really becomes center stage as the Fed tries to figure out what level of bank reserves is the right one. And by the way, on this REAL RATE debate, the average real rate in the 5 yr in the 10 years leading into the Great Financial Crisis, was 254 bps. The average 10 yr real rate was 294 bps. We are currently well below that.
I'll add this, what if China is successful in stabilizing their economy and commodity prices rise again? The CRB raw industrials index, while well off its highs of a year ago, closed on Friday just off its highest level since October, ticking up over the past few weeks. The CRB food index is at a 6 week high, though also still well off its highs.
Shanghai to Rotterdam shipping cost
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Core Goods Prices in white, Shipping rate Shanghai to LA in orange
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CRB Raw Industrials Index
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CRB Food Stuff Index
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I will say this on oil, with big time worries about possible disruptions because of a war breaking out in the Middle East, it is shocking that there has not been a greater attempt at refilling the Strategic Petroleum Reserve.
SPR Inventories
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European bonds are rallying, and why US Treasuries are too, and the euro is falling after more ECB speak. One dovish Governing Council member Mario Centeno said "We don't need to wait for May wage data to get an idea about the inflation trajectory" and he sees "a lot of evidence that inflation is falling in a sustained way." Bank of France head Francois Villeroy said over the weekend that the ECB could cut at anytime, "Regarding the exact date, not one is excluded, and everything will be open at our next meetings." Apparently each don't care about spiking shipping costs and rising oil prices.
Then on the other hand, Peter Kazimir, another Council Member said "Acting hastily based on short term surprises without having more clarity about the medium term would be risky. It could easily derail the progress we have made toward reaching our target." He's leaning towards June for their first rate cut and not April which the markets are now pricing in.
Shifting to some earnings calls that I went through over the weekend, let's highlight two in particular that are benefiting from the federal government's IRA and CHIPS act and state government spending on infrastructure and in turn which is goosing economic activity.
United Rentals:
"Within our construction markets, both infrastructure and non-residential continued to show solid growth y/o/y as our customers kicked off new projects across a diverse range of markets. These include battery plants, semiconductor related jobs, power, infrastructure, as well as data centers."
Eagle Materials, maker of cement and other aggregates:
"Our heavy materials performance this quarter continued to benefit from favorable business conditions. Public infrastructure spending is robust. The bulk of the United States investment in roads, bridges, highways comes from the state and local level and tax receipts continue to be strong, while state budgets remain healthy. In addition, increased infrastructure spending from the Federal IIJA funds should increase noticeably for the next several years."
"The passing of the CHIPS Act and IRA has led to meaningful increase in heavy industrial projects focused on computer, electric and onshoring of other manufacturing."
American Express on the consumer:
"In the fourth quarter, billed business grew 6% as we continue to see more stable growth rates after lapping the prior year impact of Omicron back in the first quarter. This 6% growth rate does reflect a bit of softening vs last quarter, but I would point out that the number of transactions from our card members continues to grow double digits y/o/y, a good indicator of the engagement of our customer base."
"Our growth was driven by 5% in business services spending, and although slower than last quarter, continued strong growth in travel and entertainment spending up 9% for the quarter. Restaurant spending remains our largest T&E category and reached $100 billion for the full year for the first time, while airline spending growth slowed in the quarter."
"Spending growth from our US small and medium sized enterprise customers remained modest given unique dynamics seen by small businesses over the past few years."
"Overall, while we're seeing a softer spend environment, we are pleased with the continued strong engagement and loyalty of our card members across the globe. As we think about 2024, we are assuming a spend environment similar to what we've seen in the past few quarters."
On credit quality, "As we had expected, our write off and delinquency rates did continue to tick up this quarter. Going forward, we expect to see this delinquency and write off rates remains strong with modest increase in 2024."
More Night Moves: A Detailed Look at Overnight Futures and Why/What Markets Are Moving
* After days of weak breadth, breadth improved on Thursday but dropped back lower on Friday
* Investor sentiment has now moved into a more overbought territory - the S&P Short-Range Oscillator is at 2.1% v. 1.32%.
* This morning, yields and crude oil prices are lower while gold is climbing (+$8.90) and bitcoin rebounds (+1%)
* The U.S. dollar is flat this morning
* My thoughts and prayers remain with Deb, Sarah and Lilah Barron:
They are one person
They are two alone
They are three together
They are for each other
- Crosby, Stills and Nash - Helplessly Hoping
"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 are mixed, but well off the lows, despite the rising geopolitical tension over the weekend. S&P futures peaked at -4 and bottomed at -15. Nasdaq futures peaked at -59 and bottomed at -66. At 6:06 a.m. ET, S&P futures were +2 and Nasdaq futures were +38.
and...
* The S&P Short-Range Oscillator is increasingly overbought 2.10% v. 1.32%.
* The VIX is up again to 13.98 (+$0.64).
* The U.S. dollar is flat this morning.
and...
* Treasury yields are flat to lower. The 2-Year Treasury yield is unchanged at 4.314% and the 10-Year is -2 basis points to 4.118%. Over there, the yield on the 10-Year U.K. Gilt bond is also flat.
and...
* Overnight, the inversion of the 2s/10s Treasuries curve is down to -20 basis points. Real rates remain quite elevated; the 10-year is still about 1.75, again in real terms.
* Commodities are lower across the board. Brent crude is turned up in the last few minutes at +$0.05 to $83.64.
and...
* Gold is up $9.60 and sits at $2,027.
* Bitcoin is +$400 to nearly $42.4k.
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:
Here were Friday's trades:
* It was a sobering day, limited trades.
* Added to energy positions on weakness as the sector reversed hard to the upside in the afternoon. The prior day I took off my protective short oil-related calls.
Not Broadening
From Liz Ann:
From The Street of Dreams (Part Deux)
Warner Brothers Discovery (WBD) is in a number of value investors portfolios.
I continue to view the outlook for streaming as problematic with "profitless prosperity" the theme.
I remain short both WBD and (PARA) .
This morning Wells Fargo moves WBD to equal weight from overweight - cutting its price target from $16 to $12.
Tweet of the Day
The likely reacceleration of inflation is a core reason why I remain bearish on equities.
No nonsense from Keith at Hedgeye:
Themes and Sectors
This is a valuable table for momentum-based short term traders:
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From The Street of Dreams
From JPMorgan:
US: Futs are mixed with Tech outperforming amid a global rally in bonds with the largest decline in yields seen in the EU. US yields are down 2-4bps across the curve into this week's Fed mtg and Treasury refunding announcement. USD starts the week stronger and is on pace for its strongest month since Sept 2023. Global stock performance is mixed with APAC o/p EMEA and US led, pre-mkt, by MegaCap Tech with AMD, NVDA, and TSLA all up at least 1%. Cmdtys mixed and WTI has given back its overnight gains which were driven by geopolitical headlines. Base metals o/p on China stimulus hopes. Today sets up to be a relatively quiet day as we a series of macro/micro data releases that should help determine near-term direction.
and...
EQUITY AND MACRO NARRATIVE: Last week, the SPX added 1.1%, setting a new record high for the SPX on Thursday at 4894. Some notable movement this week includes Airlines (JP1BAIR) +8.5%, FANG +7.9% (driven by NFLX +18%), KRE +4.7%, and JPM High Short Interest (JPTASHTE) +2.1%. SPX underperformed RTY by 1.3%. MTD the SPX is +2.5% led primarily by Tech, Financials, and Healthcare. Concentration remains narrow with the SPX outperforming its equal-weighted counterpart by 279bps. The key question is whether this rally is sustainable and, if so, for what magnitude.
My Tweet of the Day
Market Structure Remains a Profound and Deep Risk to Equities
It remains my strong view that the impact of dispersion products, ODTE options and other market structure factors and influences are being ignored by most investors:
I Am Exhausted, Too...
Programming Note
I will be leaving at about 3 pm today as I have a memorial service to attend.