- NYSE volume 421M shares, 5% above its one-month average; 

- NASDAQ volume 3.84B shares, 13% below its one-month average;

- NYSE Highs: 131 Lows: 7

- NASDAQ Highs: 98 Lows: 51

Market Breadth

Market Movers

Heat Map

I am preparing for a spate of EPS announcements.

I have to leave at 5 p.m. for the opera so I wont be posting until early tomorrow morning.

* What I will be looking for...

From my perch it will be very interesting to see to what extent Microsoft  (MSFT)  and Alphabet  (GOOGL) see the rise in costs/expenses as they invest in AI -- at a point in time that is well before revenue is generated.  

A rally in Brent crude oil is taking energy stocks to the day's highs now. 

Oil vey!

Going into a one hour research call with a company at 1:45 pm.

Ken Griffin is optimistic on the economy. 

From my perch, government spending and upper end consumer spending are what is keeping the economy growing. 

Moreover, business investment is barely growing.

* Instead we hear genuine gibberish...

I just heard several business media types spout a bunch of pablum when asked about Microsoft's (MSFT) prospective earnings report. 

I am a pretty good listener but I have no clue what they just said. 

Unlike many "talking heads", I have no edge with regard to Alphabet (GOOGL) and Microsoft's EPS reports tonite. 

We are in a market where everyone - even those with absolutely no modelling or process - profess a certain view. 

I call in verbal diarrhea - with phony and made up narratives coupled with a sense of confidence. 

I just don't know. 

There, I wrote... said it.

Apple sees 2024 iPhone shipments down 15% y/y, says Ming-Chi Kuo: Apple analyst Ming-Chi Kuo said in a post on Medium that his latest supply chain survey indicates that Apple has lowered its 2024 iPhone shipments of key upstream semiconductor components to about 200 million units, or down 15% year-over-year. Apple may have the most significant decline among the major global mobile phone brands in 2024, the analyst said, adding that iPhone 15 series and new iPhone 16 series shipments will decline by 10%-15% y/y in 1H24 and 2H24, respectively. Source article, here.

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From Peter:  

S&P CoreLogic said its home price index rose 5.1% in November y/o/y and continues the affordability squeeze, even with the drop in mortgage rates which is just back to where they were last summer and still double the pre hike cycle level. Price increases in Detroit, San Diego and NY led the way while they fell by .7% y/o/y in Portland and barely grew in Denver and Seattle.

Bottom line, the first time home buyer continues to get screwed. Either many can't afford to own and must rent right now or they can afford but the monthly payment takes up a big chunk of their income and delays spending on other things.

Ahead of the JOLTS discussion here, does it seem like every single day there is another high profile company announcing job layoffs? Today being UPS and 12k people.

The Dallas Fed asked its constituents to chime in on their hiring intentions. From my friends at Quill Research, "The ask: 'Are you currently trying to hire workers?' A total of 53.9% of Texas manufacturers (red bars), 51.4% of Texas service professionals (yellow bars) and 53.6% of retailers (blue bars) all responded "NO." All three marked record highs since the query was first introduced in 2019."

The number of job openings in December, thus somewhat dated, was 9.026mm, about 275k above the estimate but about in line with the 6 month average of 9.095mm but that is down from the 1st half of 2023 average of 9.9mm and the 2022 average of 11.18mm. The hiring rate ticked up by one tenth to 3.6% after falling by 2 tenths in November which was the lowest since 2014 not including Covid. The quit rate held at 2.2% but that's the slowest since 2018 not including Covid.

Job wise, they rose in the important and persistent education/health service sector. There was also an increase in the need for professional/business services to a 4 month high. Manufacturing openings increased, possibly as a result of the end of the UAW strikes. Construction jobs fell. Of particular note, the job openings for the leisure/hospitality sector fell to the lowest level since February 2021.

Bottom line, I wish we had a more timely job openings figure but this was a move up after the prior two months below 9mm. Either way, the trend in job openings is for less of them, the hiring rate is just off the lowest level in 10 years not including Covid, and the quit rate is at the lowest level since 2018 also not including Covid.

Job Openings

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Hiring Rate

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Quit Rate

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The January Conference Board's consumer confidence index followed the UoM survey in the direction of trend upward. The print of 114.8 was as forecasted, up from 108 in December with most of the gain coming from the Present Situation. That's the best level since December 2021 but still well below the February 2020 print of 132.6. Also of note, one yr inflation expectations slowed to 5.2% from 5.5%.

Helping the 'Present Situation' was an improvement in the attitude toward the labor market interestingly. Jobs were Plentiful rose to the highest level since June 2023 and those Hard to Get fell to the lowest since March 2022. Confused with all the commentary here on jobs? I am too. On the other hand, expectations for employment fell to a 3 month low as did income expectations.

Notwithstanding lower inflation expectations and in contrast to what was seen in the UoM survey, spending intentions declined for autos, homes and major appliances m/o/m.

In terms of demographics, interestingly, the only income level that saw a dip in confidence was for those making more than $125,000. Age wise, all groupings saw in increase.

The bottom line was this from the Conference Board, "January's increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor."

The 10 yr yield in response to the data is back to where it was before the Treasury made its quarterly refunding plan yesterday at 4.09-.10% from 4.04% earlier this morning.

Consumer Confidence

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Inflation Expectations one yr out

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Energy stocks are getting jiggy. 

I recently covered my short calls in the sector when the stocks were under pressure late last week.

At 10:41 am:

* In direct contrast to yesterday's improvement in breadth...

- NYSE volume 143M shares, 1% above its one-month average

- Nasdaq volume 1.29B shares, 17% below its one-month average

Breadth

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Biggest Movers

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Heat Map

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Nasdaq 100 Heat Map

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Nada, zero.

Financials are taking off where technology left off...

From The Credit Strategist - February 2024

After years of patiently listening and nodding their heads as so-called experts pontificated about their (mostly progressive) ideas about how to destroy the world at the World Economic Forum (WEF) in Davos, Switzerland, some attendees started pushing back this year. Perhaps the accumulated effects of the 2008-9 global financial crisis, the 2020 pandemic (and ensuing inflation explosion resulting from the bungled decision to shut down the global economy), a global immigration crisis, and two wars are finally starting to convince people that Davos Man is part of the problem rather than part of the solution.

Until now it was deemed impolitic to tell Davos Man that his ideas are precisely the opposite of what's required to promote and sustain future freedom and prosperity. But this year, finally, several people including the Heritage Foundation's Kevin Roberts, JP Morgan's Jamie Dimon and Argentina's newly elected president Javier Milei decided enough was enough.

Mr. Roberts runs a conservative political group so his views were no surprise, but he didn't pull any punches, saying, "The very reason I'm here at Davos is to explain to many people in this room and who are watching with all due respect - nothing personal - that you are part of the problem. Political elites tell the average people...that the reality is 'x' when in fact, reality is 'y.'"

Further, "[i]t's laughable that you or anyone would describe Davos as protecting liberal democracy," highlighting the fact that the progressive ideology promoted by Davos Man opposes free speech, racial equality, rational climate policy, and other tenets of classical liberalism. Prior to the conference, Mr. Roberts wrote: "The infamous hypocritical self-avowed Marxists, private-jet environmentalists, and genocide-adjacent humanitarians want to hear from Heritage Foundation how they can 'rebuild trust' with everyday Americans against whom they have weaponized their institutions." He then tweeted: "My message to the self-appointed global elites: Your time is up."

While it has long been clear to readers of this publication that there are fundamental deficiencies in the progressive project, the anti-human, antisemitic reaction to Hamas's genocidal attack on Israel (whose key component was sexual violence against women) removed any doubt that progressivism is broken. Progressives like to talk about their personal "truths" (whatever that means but let's give them the benefit of the doubt here).

Well, they certainly exposed their "truths" after October 7th as antisemitic, misogynistic, anti-human and anti-freedom. And rather than realize they went too far, they have been doubling down ever since they came out in support of Hamas and in opposition to Israel's right to defend itself against an enemy that intentionally embeds itself among allegedly innocent civilians in order to create the illusion that Israel's self-defense is improper.

Progressivism wasn't always this way. The movement originated in good faith measures to correct the sins of past inequality and racism (by which, by the way, Jews were also victimized), but it was pushed to extreme limits that caused it to negate itself and turn into its opposite. So instead of an enlightened, pro-freedom, pro-equality philosophy, progressivism became an unenlightened, anti-freedom, anti-equality program. That is why liberals today oppose free speech on university campuses, support reverse racial discrimination in the form of affirmative action admissions and corporate hiring, and promote redistributionist, pro-dependency economic policies that ultimately reinforce poverty and ignorance.

These are precisely the policies that destroy freedom, slow economic growth, and most importantly harm the disadvantaged groups they purport to represent. These are the truths Mr. Roberts was trying to deliver to the Davos audience; he may not be invited back which would be a shame because he is trying to save Davos Man from himself.

Jamie Dimon was similarly blunt in criticizing the progressive religion of Davos. In an interview with CNBC at the conference, he delivered a message that contradicts the media's narrative about Donald Trump and the Republican agenda, urging greater respect for Trump's voters (to be clear, I do not support Trump's candidacy):

"But when people say MAGA, they're actually looking at people voting for Trump and they think they're voting - and they're basically scapegoating them, that you are like him, but I don't think they are voting for Trump because of his family values. If you look at it, just take a step back, be honest. He's kind of right about NATO. Kind of right about immigration. He grew the economy quite well... Tax reform worked. He was right about some with China. I don't like the things he said about Mexico, I don't like - but he wasn't wrong about some of these critical issues. And that's why they're voting for him."

They are also voting for him because they find progressive (woke) ideology not only offensive but absurd. The FAA actively seeking out "severely handicapped" people to work at an agency charged with protecting travelers' safety? The Biden administration's hiring policies that are openly discriminatory against non-minorities? Its attack on energy production? Forgiving student loans and rent payments long after the end of the pandemic? Allowing open borders while progressive California offers free healthcare and other benefits to illegal immigrants? People see these progressive policies as morally and intellectually bankrupt and contrary to a system that they thought was supposed to value hard work, self-reliance and independence and question what is happening in their country that has become unrecognizable to them. Even if one agrees with these policies, Mr. Dimon was making the point that disrespecting those who oppose them is unjustified.

Both Mr. Roberts and Mr. Dimon point to the lack of self-regard that characterizes progressives who clearly don't care that their policies are self-contradictory, self-destructive and ineffective. While both American political parties are guilty of criminal negligence with regard to borrowing and spending America into oblivion (and many other lapses on things like immigration and gun control), progressives have taken their policies to extremes that many moderates can no longer support.

The fact that Donald Trump is almost certain to be the Republican candidate for president and could return to the White House is overwhelming evidence of just how badly progressives damaged their own cause. That was Mr. Dimon's message. Democrats should open their eyes before it is too late (it is already probably too late) and acknowledge that their policy agenda is poisonous and the biggest obstacle to electoral success.

At 8:38 am:

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Upside

- (ITRM) +58% (Phase 3 REASSURE clinical trial of Oral Sulopenem in Uncomplicated Urinary Tract Infections met Primary Endpoint of Non-Inferiority to Augmentin and demonstrated statistical superiority)
- (MOTS) +48% (publishes positive results from a European Study of the Second Generation Pure-Vu System in Improving Visualization for Colonoscopy in Patients with a History of Poor Bowel Preparation)
- (SANM) +15% (earnings, guidance)
- (PXLW) +13% (Walt Disney Studios and Pixelworks enter into multi-year agreement to expand reach of TrueCut Motion Technology)
- (SMCI) +13% (earnings, guidance)
- (TSVT) +13% (to focus exclusively on Abecma following asset sale to Regeneron)
- (FFIV) +10% (earnings, guidance)
- (KURA) +8.9% (reports positive preliminary Ziftomenib Combination Data in Acute Myeloid Leukemia)
- (GM) +7.7% (earnings, guidance)
- (CLS) +7.3% (earnings, guidance)
- (HCA) +6.3% (earnings, guidance; names new CFO, raises dividend and announces share buyback program)
- (WWD) +5.8% (earnings, guidance)
- (AAOI) +5.5% (Rosenblatt Securities Inc. Initiates AAOI with Buy, price target: $23)
- (HP) +4.8% (earnings, guidance)
- (BIGC) +4.1% (President Steven Chung to step down; Names Brent Bellm interim Pres, effective Feb 16th; Guides Q4 operating income above prior guidance range)
- (ANVS) +2.9% (files new patent application for treatment of neuropsychiatric indications, expanding portfolio)
- (SQ) +2.8% (multiple broker upgrades)
- (MPC) +2.7% (earnings, guidance)
- (F) +2.6% (sympathy with GM earnings; Ecolab selects over 1,000 of Ford F-150 Lightning and Mustang Mach-E to reach 100% EV in California by 2025, targeting complete North American fleet electrification by 2030)
- (AOS) +2.1% (earnings, guidance)
- (OSK) +2.0% (earnings, guidance)

Downside

- (SIDU) -45% (prices 1.3M shares at $4.50/share)
- (CALX) -21% (earnings, guidance)
- (ATGE) -14% (weakness attributed short position disclosure by Safkhet Capital and Fahmi Quadir)
- (HLIT) -7.2% (earnings, guidance)
- (UPS) -7.1% (earnings, guidance)
- (PII) -6.0% (earnings, guidance)
- (ALRN) -5.9% (files to sell up to 7.1M shares for selling holders)
- (WHR) -4.7% (earnings, guidance)
- (PDD) -3.7% (downside momentum)
- (PTN) -3.7% (places 1.83M shares at $5.46/shr in $10M direct equity, warrants offering)
- (APH) -3.3% (acquires CIT Business from Carlisle for $2.025B in cash)
- (CLF) -2.8% (earnings, guidance)
- (DEO) -2.8% (earnings, guidance)
- (DHR) -2.5% (earnings, guidance)

Here is a list of important EPS releases after the close of trading today:

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From Peter:

The spillover from the spike in sea container costs and disruptions caused by the Red Sea attacks resulted in a 6.4% rise in the Baltic Air Freight Index w/o/w as shippers move to air for some goods. The caveat is that some of this increase could be related to the rush to ship ahead of the China New Year holiday. We'll see to what extent next week.

The January Dallas manufacturing index seen yesterday reinforced the contraction that is still going on in global manufacturing as it fell to -27.4 from -10.4. The estimate was -11, the deepest below zero since last May and it hasn't had a plus sign in front since April 2022, almost 2 years ago. Also of note was the 6 month outlook which was negative for a 6th straight month.

Here are some notable comments with most citing the challenging conditions:

Food Mfr'g

"Stagflation, increased commodity costs, labor costs and benefits to retain talented staff, political upheaval, border failure and dysfunction at the regulatory level are issues affecting our business."

"Current macroeconomic conditions are not encouraging. After a busy 4th quarter, the start of 2024 has been slower than planned. My view of 2024 has not changed. I had thought 2024 would be a good year, but I see signs of trouble ahead, which will be disruptive."

"Demand feels weak right now."

"We are seeing increased stability in demand for our products, which is a change from a year ago when we saw a dramatic decline in our super-premium items. It feels to us like consumers are more comfortable this year than last year. Interest rate increases have stopped for the moment, which may have an impact on their attitude. We are seeing moderate growth this year, which is a good sign for us."

Textile Product Mills

"January has been a slower month for sales relative to December (to be expected) and y/o/y (which was not expected). We are also seeing increasing lead times for the inventory and delays at the ports, which we've not seen or experienced in several months. Overall, uncertainty is high, and I'm feeling less optimistic than I did last quarter."

Paper Mfr'g

"The improvement is slight but measurable."

Plastics and Rubber Products Mfr'g

"The current state of the oil market is slowing. This is resulting in a noticeable reduction in new orders. The first and 2nd quarters of the year will be challenging." Likely in response to lower rig counts is my guess.

Primary Metal Mfr'g

"Lots of bad vibes out there. But orders are not down as much as I would have expected."

Fabricated Metal Product Mfr'g

"We expect softening of demand in the first half of 2024, with partial recovery forecasted for the 2nd half."

"We are very concerned about our credit line renewal in February, the loan amount being decreased and rate costs increasing."

Machinery Mfr'g

"It has been a slow start to the year as we though business would pick up after the holidays, however, it has not. Based on current business activity, this may be a rough year."

"We are investing short term in new manufacturing equipment because our competitors are now asking us to manufacture their equipment. This is increasing our sales and production of finished goods to the point that we are buying larger quantities of raw materials."

"We are still having trouble finding raw metal goods and bar stock."

Computer and Electronic Product Mfr'g

"We would expect to move through a cyclical bottom sometime between the 2nd and 3rd quarters of 2024. End demand seems to remain stable; customers are adjusting inventory in response to lower growth expectations."

"We have seen a decrease in quote opportunities, quote requests and sales orders. I am not sure the reason why."

Furniture and Related Product Mfr'g

"Our heads will be in the sand for the next 18 months."

Dallas Mfr'g

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On to some earnings comments.

From Diageo, a stock we own:

"The US consumer environment is still normalizing from the Covid super cycle, while consumer sentiment across both our internal sources and external sources is improving vs the prior year, consumers are still facing multiple headwinds, including higher interest rates and higher priced baskets. So while consumers are resilient, they are still cautious and choiceful. And premiumization continues, but there are some pockets of down trading."

From Sofi:

These are their macro assumptions for this year, "We assume a contraction in GDP in 2024, an increase in unemployment to higher than 5% and broadly a continuation of uncertain capital markets activity and continued normalization of consumer credit. From an interest rate perspective, we are assuming four rate cuts in response to a contracting economy, higher unemployment, and deterioration and normalization in credit performance, with fed funds rate reaching approximately 4.5% by Q4 2024." Sounds pretty defensive and that is not a soft landing if realized.

They expect some slowdown in their lending segment growth and "reflects our choice to limit lending growth below both the much higher level of demand we have had and expect to continue to see in 2024 and the capacity that we have." And within this, "our personal loan obligations could be relatively flat or down vs 2023, while student loan originations could grow just modestly and home loan growth could be correlated with rate decreases."

"So our net charge off rate for the personal loans business was 4%. That was up from 3.44% in Q3 of 2023...we do expect a continued normalization towards pre Covid levels and life of loan losses in the 7% to 8% range."

From Pulte earnings release:

"As the 4th quarter progressed, we experienced a significant increase in buyer activity as interest rates moved lower, resulting in December being the highest sales month of the quarter. With expectations for interest rates to remain lower in 2024, we are optimistic that improved affordability dynamics will continue attracting buyers into the market."

There wasn't much of a market response but the BoJ was given another reason to remove itself from NIRP as the December unemployment rate fell to 2.4% from 2.5%. That matches the lowest since December 2019. The job to applicant ratio though did tick down to 1.27 from 1.28 and the estimate was for no change. That's the lowest since June 2022. The Spring wage discussions have begun and Governor Ueda is watching closely, though I believe he should be watching inflation more so.

Japan Unemployment Rate

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The Eurozone saw no growth in Q4 q/o/q and hasn't really grown since Q3 2022. This follows a .1% decline in Q3 and .1% gains in Q1 and Q2 of 2023. The estimate was for a slight .1% q/o/q contraction but it feels the same. The German economy contracted by .3% q/o/q while in France it was unchanged. It will be interesting to hear what big cap tech says this week about their European business and whether they bucked the no growth trend.

The January Eurozone economic confidence index was little changed at 96.2 vs 96.3 in December. The estimate was 96.1. The internals were mixed as growth was driven by services but consumer confidence weakened as did retail sales and construction. Manufacturing was a touch less negative.

Also of note and why European bond yields are slightly higher was the upside in Spanish CPI in January and Spain's economy performed better than its peers in Q4. The headline CPI growth was 3.4% y/o/y, up 3 tenths from December and 4 tenths above the estimate. The core rate of 3.6% also exceeded expectations of 3.3%, though down from 3.8% in the month before. It's economy grew by .6% q/o/q, well better than the estimate of up .2%. The euro is bouncing with yields.

* Larry McDonald says the truth...

Give 'em the old razzle dazzle
Razzle Dazzle 'em
Give 'em an act with lots of flash in it
And the reaction will be passionate
Give 'em the old hocus pocus
Bead and feather 'em
How can they see with sequins in their eyes?

- Chicago,Razzle

Two more from Keith:

and...

* The market's freight train accelerated on Monday but, as Casey Jones suggested, you better watch your speed!

* The proximate cause was a cut in the projection of Treasury borrowings and refundings:

* Breadth improved yesterday:

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* The overbought climbs - the S&P Short-Range Oscillator is at 2.98% v. 2.1%

* This morning, yields are a bit lower and crude oil prices are unchanged - gold is climbing (+$9.50) and bitcoin is +$280

* The U.S. dollar is flattish against most major currencies

* If the Super Bowl is a music contest - I think you all know who I am rooting for:

* And you know this notion has just crossed my mind:

Driving that train
High on cocaine
Casey Jones you better
Watch your speed
Trouble ahead
Trouble behind
And you know that notion
Just crossed my mind

- The Grateful Dead, Casey Jones

"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 and in a very narrow range after Monday's breakout. S&P futures peaked at +4 and bottomed at -8. Nasdaq futures peaked at +30 and bottomed at -41. At 6:22 a.m. ET, S&P futures were -6 and Nasdaq futures were -13.

and...

* Commodities are mixed. Brent crude is unchanged at $82.40 after yesterday's rise and then fall.

* The S&P Short-Range Oscillator is now overbought 2.98% v. 2.1%.

* The VIX is up again to 13.70 (+$0.10).

* The U.S. dollar is flat against most major currencies.

* Treasury yields are lower. The 2-Year Treasury yield is -1 basis point at 4.316% and the 10-Year is -4 bps to 4.064%. Over there, the yield on the 10-Year U.K. Gilt bond is -1 basis point.

* Overnight, the inversion of the 2s/10s Treasuries curve is down to -24. Real rates remain quite elevated; the 10-year is still about 1.75, again in real terms.

* Gold is up +$7.30 and is at $2,033.

* Bitcoin is +$300 to nearly $43.5k.

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:

Newtonian Mechanics

Here were Monday's trades ("half day"): 

* Added to (BMY) long

* Added to Index shorts

This table is valuable for momentum-based short-term traders:

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JPMorgan's Dubravko on concentration:

Record Stock Concentration and Active Manager Performance

By Dubravko Lakos-Bujas AC, Arun Jain, Kamal Tamboli, Bhupinder Singh, Narendra Singh, Marko Kolanovic, PhD

Click here for the full document and disclaimers

Market leadership is becoming increasing unhealthy with a further increase in stock concentration this January versus last year. While the weight of the top 50 stocks within S&P 500 remains roughly unchanged, the largest 10 stocks have continued to increase (now at 33.1% weight) at the expense of the next 40 (down to 35.8%) and the broader index ( Figure 5). Cap-weighted S&P 500 trounced its equal weighted version by ~3% YTD compared to ~12% outperformance in all of 2023. This extremely concentrated setup (50-60 year high, comparable to Nifty-Fifties, Figure 4) intensifies the battle between index funds and active funds. In particular, it presents a high hurdle for active managers to outperform cap weighted benchmarks given the narrow opportunity set of winners tilted towards mega-cap companies ( Figure 14). In fact, last year active managers delivered one of their worst relative performances on record with only 23% of Large-cap Core funds outperforming their benchmark (vs. 66% in 2022 and 46% MTD, Figure 1). However, there were some brighter spots such as Value managers (49% outperforming the benchmark in 2023).

Most institutional investors have been adding exposure to Mag7 starting in 1Q23 but their weights still remain shy of pre-pandemic levels ( Figure 2); specifically, Investment Advisers ( Figure 35) and Mutual Funds ( Figure 36) chased performance while by contrast the value conscious Pension Funds cut exposure ( Figure 38). Overall, the pace of adding Mag7 to fund portfolios lagged the increase in their benchmark weight, which was further exacerbated by passive funds reinforcing this momentum trade ( Figure 40). Based on our estimates, the negative active weight for institutional investors in Mag7 increased further to ~-3% versus the S&P 500 index composition in 3Q23 ( Figure 3). Notably, investors were overweight GOOG and META while underweight the rest of the Mag7 especially AAPL at an estimated active weight of -1.4%. On the other hand, the non-institutional investors were significantly overweight Mag7 at +9.6%, specifically within AAPL (+4.2%), TSLA (+2.4%) and AMZN (+2.3%). Interestingly, Hedge Fund short interest in Mag7 remains elevated, which could drive even more extreme concentration if there is covering ( Figure 31). Even though Mag7 represents 29% of index weight within S&P 500, their share of total expected 2024 earnings is at 21%. However, of the expected earnings growth this year, their contribution is far more significant at 34% ( Figure 9). If stock leadership remains narrow in 2024, active managers may find themselves in a vicious cycle of again having to compete with momentum chasing index funds and being forced to chase an even more concentrated benchmark.

"If you torture the data long enough, it will confess to anything"

- Darrell Huff

Bonus: Here are some great links:

When Does this Bull Market End?

Tech Stocks Reach Important Resistance Levels

Developed World At All Time High

Why The Market Will Continue Higher

Dynasties

From Hedgeye's Keith:

Break in!

United Parcel Service (UPS) forward guidance is weak.

From JPMorgan:

US: Futs are flat into the first batch MegaCap Tech earnings with GOOG/MSFT headlining today's releases. Pre-mkt, TSLA and NVDA are +2.4% and +1%, respectively. Bond yields are 1-2bps lower with USD off small. Cmdtys are mostly lower with base metals lower as Chinese Equities sold off. The macro data focus will be on housing prices, consumer confidence, and JOLTS job openings.

and...

EQUITY AND MACRO NARRATIVE: Yesterday felt like position squaring into the heavier portion of this week's data with the lighter than expected Treasury Refunding acting as a positive catalyst, though that event does little to change the macro narrative. Aside from MegaCap Tech keep an eye on releases including JBLU, MDLZ, PHM, SBUX, SYY, and UPS for additional cues on the economy.

Doomberg on what the Biden LNG export pause means for primary energy producers.

Wolf Street howls about the Treasury's quarterly refunding announcement.