* A sloppy day... 

Volume

- NYSE volume 391M shares, 3% below its one-month average;

- NASDAQ volume 4.04B shares, 2% above its one-month average

Breadth

% Movers (Please click here for a larger view)

Nasdaq 100 Heat Map (Please click here for a larger view)

Please click here for a larger view of this table.

I have a research telephone call at 2 pm.

Should take about 45 minutes.

Back soon.

* On volatility that may lie ahead...

Randolph Duke: "Mother always said you were greedy."

Mortimer Duke: "She meant it as a compliment."

- Trading Places 

The market's volatility is providing a fantastic backdrop for trading.

But the buy/hold crowd is suffering.

Trading places! 

- NYSE volume 107M shares, 18% below its one-month average

- Nasdaq volume 1.45B shares, 5% above its one-month average

Breadth

Biggest Movers

View larger, here.

Nasdaq 100 Heat Map

The stability of financials suggests, to me, the possibility of some stabilization over the near term.

Stay tuned. 

Initial jobless claims totaled 212k, 3k less than expected and unchanged with the week before. The 4 week average of 215k was also flat with last week. Continuing claims were also little changed but holding above 1.8mm at 1.812mm, near the highest since November 2021.

The bottom line remains the same with the muted pace of firing’s, at least as measured here, and the slowing pace of hiring’s in every stat and anecdote outside of the BLS payroll report.

In contrast to the negative April NY manufacturing index and adding hope that US manufacturing is finally showing signs of bottoming, the April Philly index bounced to +15.5 from +3.2 and that was well above the estimate of +2.0. The internals though were hugely volatile and much more mixed with new orders up by 7 pts to +12.2 but backlogs little changed at just above zero at .8 while inventories fell more than 13 pts to -8.9.

Employment remained deeply negative at -10.7 which is the weakest since 2016 not including Covid. The workweek plummeted to -18.7 from -.2. Outside of Covid, go back to June 2009 the last time it was that low. Delivery times (capturing the supply chain) was less negative but still reflecting much smoother supply chains. Prices paid though jumped to 23 from 3.7 and that is a 4 month high and likely coincident with the rise in commodity prices we’ve seen. Prices received, where prices paid takes time to flow thru to, rose a touch to 5.5 from 4.6.

As for the 6 month business outlook, after jumping to the highest since the summer of 2021 last month, it receded slightly but apparent that manufacturers are more hopeful that a bottom in their business is finally in after about a 2 yr recession. How long it takes to lift off the bottom remains to be seen but hopefully the worst is in. 

There was also a 17 pt m/o/m jump in expectations for prices paid and points again to my belief that goods price disinflation is over. Capital spending plans slipped but after bouncing over the past few months.

Bottom line, manufacturing around the world is trying to find a bottoming in activity with end demand and an eventual need for inventory restocking determining the timing and pace of the rebound. Those two factors driving a sustainable improvement are not yet in place thought I believe.

Philly Mfr’g

New Orders

Prices Paid

Employment

Upside

-AGBA +168% (AGBA and Triller merge to create a $4B company to enhance power in digital content and financial services in stock deal)

-BPTH +52% (successfully completes Higher Dose Second Cohort in Phase 1/1b Clinical Trial of BP1002 in Refractory/Relapsed Acute Myeloid Leukemia (AML) Patients)

-ME +32% (confirms CEO’s intention to pursue a potential take-private)

-CMMB +12% (reports new Peer-Reviewed Publication reinforcing the clinical association of CCL24 target with Disease severity and mortality in patients with Systemic Sclerosis)

-BCYC +10% (Baker Bros. Advisors LP discloses 19.9% stake; Felix Baker appointed to Board)

-VTSI +6.6% (awarded $5.9M prototype contract from U.S. Army IVAS Prime Contractor Microsoft)

-ATNM+4.8% (highlights ability of Iomab-B to overcome High-Risk TP53 Mutation Resulting in Significant Improvement in Overall Survival in Patients with Active Relapsed Refractory AML at the European Bone Marrow Transplant Annual Meeting)

-CMA +4.7% (earnings, guidance)

-VRTX +4.0% (announces advancements of Suzetrigine (VX-548) in Acute and Neuropathic Pain)

-EBAY +3.6% (Morgan Stanley Raised EBAY to Overweight from Underweight, price target: $62)

-DHI +3.3% (earnings, guidance)

-MRVI +3.0% (Unit TriLink BioTechnologies announces new San Diego facility for late Phase mRNA Drug Substance Production)

-OZK +2.9% (earnings)

-ELV +2.8% (earnings, guidance)

-AA+2.3% (earnings, guidance)

-LBRT +2.2% (earnings, guidance)

-TGTX +2.0% (announces additional data presentations for BRIUMVI (ublituximab-xiiy) in Multiple Sclerosis at the American Academy of Neurology 2024 Annual Meeting; awarded national contract by the Department of Veterans Affairs for BRIUMVI as preferred anti-CD20 for relapsing forms of multiple sclerosis)

Downside

-EFX -8.7% (earnings, guidance)

-INFY -7.4% (earnings, guidance; approves acquisition)

-SNX -6.9% (momentum following recent UBS upgrade)

-BHVN -4.1% (priced 5.6M shares at $41.00/shr in $230M public offering) 

View larger here.

View larger here.

* At this point, if I was a Fed Governor I would want to keep a lower profile!

9:05 AM: Fed Board Governor Bowman speaks in a virtual fireside chat at the Securities Industry and Financial Markets Association Basel 3 Roundtable (Audience questions expected);

9:15 AM: Fed Board Governor Bowman participates virtually in fireside chat before the Securities Industry and Financial Markets Association (SIFMA) Webinar on Basel III Endgam (No text. Q&A from moderator);

9:15 AM: Fed Bank of New York President John Williams (Voter) participates in moderated discussion before the Semafor World Economy Summit, Washington, DC (No text. Moderated Q&A expected);

11:00 AM: Fed Bank of Atlanta President Bostic (Voter) speaks on the economic outlook in a moderated armchair chat before the Prosperity Partnership Fort Lauderdale Meeting, Ft Lauderdale, FL (Livestream available. Audience Q&A expected. No media Q&A. No embargoed text);

5:45 PM: Fed Bank of Atlanta President Bostic (Voter) speaks on the economic outlook, monetary policy and real estate in a moderated armchair chat at the University of Miami Herbert Business School, Coral Gables, FL ( Livestream available. Audience Q&A expected. No media Q&A. No embargoed text)

From Peter:

The Japanese, and other countries, are now relying on the G7 to help stem the weakness in their currencies. After verbal threats of intervention from Japan haven't worked, South Korea threatened the same as did Malaysia after the ringgit fell to a 26 year low vs the dollar and the Bank of Indonesia actually intervened, these countries convinced the G7 to add wording in yesterday's G7 Finance Ministers and Central Bank Governors' Statement to address.

 In headline #2 of 31 bullet points, the last sentence said "We also reaffirm our May 2017 exchange rate commitments." 

At that 2017 meeting they reaffirmed their "commitments to market determined exchange rates" and said they would "consult closely in regard to actions in foreign exchange markets." And also said, "excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability."

Well, this commentary hasn't really helped the yen which is still down on the week. The rupiah today is giving back yesterdays rise, though still holding the Tuesday jump when intervention took place. Something to watch.

With respect to the fresh TIC data for February (thus still somewhat dated), foreigners bought a net $88.8b of US Treasuries, a needed bid even as they sold off. Notwithstanding the weak yen and $2 rise in oil prices in February, Japan added $16.4b to their holdings and remains the largest foreign holder at $1.17 trillion, though off about $150b from its late 2021 peak. 

With JGB yields much higher since February, the yen weaker, and oil prices higher we'll see if buying shifted back home. China shed $22.7b and their holdings have shrunk to $755b, just off the smallest amount since 2009. Any wonder that their holdings of gold are up sharply? No, especially as the EU freeze of Russian central bank assets was a jarring event for foreigner holding US assets.

Japanese holdings of US Treasuries

Chinese Holdings of US Treasuries

I've highlighted over the past month the extreme bullish sentiment seen in late March/early April and it ended up being the perfect contrarian set up for the pullback seen in stocks. As of last weekend, the Citi Panic/Euphoria index got even more euphoric and yesterday's Investor Intelligence figures were only slightly less bullish. Bulls fell to 56.5 from 58.1 while Bears were unchanged at only 14.5, thus holding above 40 the Bull/Bear spread. 

I would have expected more of a bullish cooling from this extreme. That said, the retail driven AAII survey did cool more with Bulls falling by 5.1 pts to 38.3, the least since last November while Bears rose by 10 pts to 34, the most since last November.

So at least we've seen some shaking of the bullish tree on the retail side, but the 'professional' set is not there yet and strictly from a contrarian standpoint tells me we need some more shaking via a further pullback before some throw in the bull towel. Only then will we have a tradable rally of note.

Let's talk some anecdotes on China. Las Vegas Sands (a stock we own) missed their Macau numbers but really due to construction going on at one of their hotels and their Cotai arena. The business there continues to rebound overall. The CEO said "The Macao market continues to grow as it has each in the past 5 quarters. Since the reopening in early 2023, the annual run rate of the market has grown every quarter from $17b in Q1 of last year to $22b, then $24b and $26b, now reaching $28b in annualized gaming revenue." 

They expect this market "will grow to $30b and then $35b and then $40b beyond in the years ahead." Their Marina Bay Sands property in Singapore is probably the most profitable building in the world with an annualized EBITDA run rate over $2b.

ABB said this on its China business, "The good thing with China is that we start seeing momentum there. Units are signaling there is more activity in the market, growth is to come - that's the first time we see this indication this year." The economic world needs China on a stronger growth trajectory and I think we're seeing signs of a bottoming in growth. Another tariff battle with them will not be a good thing.

Following the earnings miss from JB Hunt, Knight-Swift Transportation preannounced weaker earnings.

They said "The full truckload industry continues to be challenging and oversupplied with capacity. The weather disruption in January had a greater impact than initially estimated, as the subsequent recovery was not sufficient to offset the negative impact to volumes and operating costs for the quarter. The early part of the bid season led to greater than expected pressure on freight rates as some shippers are still trying to push rates down further. In some cases, we have lost contractual volumes because we were not willing to commit to further concessions on what we view as unsustainable contractual rates...The softer volume and pricing headwinds also impacted our Logistics volumes and margins."

This said by Knight, Craig Fuller of Freightwaves wrote a piece yesterday calling the bottom in the freight market for both volumes and price. He said "As we enter the 3rd year of the Great Freight Recession, the trucking industry asks, 'How much longer is the market going to remain in a recession?' Finally, the bottom has been reached. We believe that we are now at the bottom of the market." He cites their Outbound Tender Rejection Index which has risen and "We believe that tender rejections bottomed out in late March and have steadily increased throughout April, which is historically a soft month in freight."

While JB Hunt and Knight talked about still excessive capacity in the trucking market, Fuller said "Capacity continues to leave the market, allowing the market to come back into balance." His bottom line, "The Great Freight Recession has gone on longer than the Covid bull run...For those that remain in the market, their reserves are likely exhausted and with it, their stamina. However, for those that can continue, the tough times may be ending. The data suggests that a recovery in the balance of supply and demand will come as soon as fall 2024, but almost certainly by the spring of 2025."

If he's right, it also means trucking spot/contract prices will firm up. 

Here was a product run down from CSX with what they are moving across their territories. "Our merchandise revenues were up 1% compared to last year with flat volumes and a 1% increase in contract renewals and slightly favorable mix more than offset the effect of lower fuel surcharge. Across the business lines, automotive accelerated nicely after a slow start at several manufacturing plants. Chemicals, our largest market, continues to gain momentum in plastics, food and NGLs (natural gas liquids)." 

They said "construction season appears to be off to a stronger start. We told you that minerals face a tough comparison for aggregates." That construction strength though is government induced "with infrastructure spending expected to accelerate." Also, "Metals volumes were a bit weaker y/o/y...Finished steel has also been a bit sluggish...Fertilizer volumes continue to be unimpacted by phosphate production issues here in Florida."

Discover Financial reported earnings and their net charge offs rose across the board. "The total net charge-off rate of 4.92% was 220 bps higher vs the prior year period reflecting continued seasoning of recent vintages with higher delinquency trends. The credit card net charge-off rate was 5.66%, up 256 bps from the prior year and up 98 bps from the prior quarter. The 30+ day delinquency rate for credit card loans was 3.83%, up 107 bps y/o/y and down 4 bps from the prior quarter. The student loan net charge-off rate was 1.58%, up 54 bps from the prior year and up 6 bps from the prior quarter. Personal loans net charge-off rate of 4.02% was up 208 bps from the prior year and up 63 bps from the prior quarter." 

Their provision for credit losses of $1.5b "increased $395 million from the prior year quarter." 'Normalization' is what we heard many financial institutions call this rise.

Overseas, Australia reported a softer than expected jobs figure and why Australian bonds are rallying, along with following the US Treasury rally yesterday. The Aussie$ though is little changed and the ASX rallied.

Schumer and other Democrats amplify call for marijuana reform.

Randy

Pot industry high on Florida's marijuana legalization referendum

A poll late last year by the University of North Florida found 67% approving of the idea of recreational marijuana.

Tesla booted by Deutsche Bank this morning.

* The action is no bueno -- false breakouts are apparent

* Stock futures rebounded overnight but a 20-handle improvement in S&P futures dissipated to flat in the last hour or so.

* The S&P Short-Range Oscillator grows more oversold at -6.68% vs. -6.01%

* Bond yields are flat to lower for a second day in a row

* The U.S. dollar is stronger against the yen

* Oil is down a bit after the recent ramp higher

* Gold is +$5.60, silver is +$0.105

* Bitcoin is +$445

"Good mornin', starshine

The Earth says, "Hello"

You twinkle above us

We twinkle below

Good mornin', starshine

You lead us along

My love and me as we singing

Our early mornin' singin' song"

- Oliver, "Good Morning Starshine" 

"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 volatile overnight, up 1/2% and back to flat, now trending up. S&P futures peaked at +22 and bottomed at -1. Nasdaq futures peaked at +121 and bottomed at +9. At 5:44 a.m. ET, S&P futures were +7 and Nasdaq futures were +42.

* Commodities are mixed. Brent crude is -$0.55 to $89.75 after a brisk run higher in recent days.

* The S&P Short-Range Oscillator has moved back into a deeper overbought at -6.68% vs. -6.01%.

* The VIX is at 18.11 (-0.10). We have capitalized on the higher VIX over the last three trading sessions by selling more straddles. I will continue to do so

* The U.S. dollar is stronger against the yen and euro, weaker compared to the pound.

* Interest rates are down by about one basis point across the board. The yield on the two-year Treasury is 4.924% (-1 basis point). The yield on the 10-year Treasury is also -1 basis point at 4.57%. The long bond yield is -1 basis point at 4.69%.

 * Overnight, the inversion of the 2s/10s Treasuries curve is up to -35 basis points.

* Gold is +$5.70 at $2,394. Silver is moving merrily along and up another 10 cents.

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:

There Is No Free Lunch 

Not Broadening 

DJT (Part Trois) 

Daily Affirmations on the State of the Market 

Live by the Sword, Die by the Sword 

Cannabis Alert! 

Short PowerSchool Holdings 

Brokedown Palace 

Nasdaq's Changing Complexion 

Here were yesterday's trades:

* Cannabis buys

* Adding to Viking Therapeutics VKTX

From Charlie:

"Risk is good. Not properly managing your risk is a dangerous leap."

- Evel Knievel

Bonus - Here are some great links:

Stocks Can Go Down 

Election Year Drawdowns Happen

Stock Market Video Analysis

How To Adapt To Changing Markets

Tech Stocks Double Tops and Fib Resistance

“In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”

- Warren Buffett

The bullish cabal has been preaching that the market's advance would broaden.

For a while the animal spirits (and the meaningful emotion and contagion of FOMO) when combined with the dominant role and influence of investment products and strategies that worship at the altar of price momentum catapulted markets higher and produced the illusion of market "strength."

That strength fed on itself as investors/traders grew greedy and ignored the emerging fundamental threats.

In my Daily Diary I have been skeptical of a broadening in the face of already high valuations, sticky inflation and interest rates "higher for longer," geopolitical threats, burgeoning U.S. deficits (and the political partisanship in Washington DC which encouraged undisciplined fiscal spending) — among other issues

For now, the body of recent evidence supports our view — as an epidemic of false chart breakouts exist:

From my friends at Miller Tabak:

Wednesday, April 17, 2024

A Higher Neutral Rate Would Be Good News

We reiterate that the endpoint of the Fed’s upcoming tightening cycle is far more important than the exact timing of when rate cuts occur. While the Fed moving slower towards a given neutral rate is bad for stocks, there is a misconception that a higher endpoint would also be bad news. The key is that where the Fed stops depends mostly on whether excellent recent productivity growth, which was over 3% for the last three quarters of 2023, is just a short-run recovery from the pandemic’s disruptions, as we and the Fed believe, or a long-lasting change to the trend. The latter outcome implies a much higher neutral rate. Nevertheless, a higher neutral rate forecasts better equity returns.

For decades, the U.S. has shifted between long periods of low, around 1.3%, trend-productivity growth and higher periods where growth instead averages around 3.0%. The period between 2006 and at least 2020 was one of low productivity growth. Table 1 shows our estimate of how upcoming productivity growth will affect medium-term (2025 and beyond) economic performance.

Table 1: Impact of U.S. Productivity on Average Economic Conditions

We expect the FOMC to start cutting interest rates in July. If 3% productivity growth lasts, then the Fed will take the Fed Funds rate to around 3.7% in 2026 before it stops cutting. This is the only realistic route for bond prices to stay in their current ballpark. The Fed is not going to raise its 2% inflation target. The only way that the Fed Funds rate will stay between 3-4% in the long-run is if sustained higher productivity growth raises the neutral rate. This would be accompanied, however, by higher trend-GDP growth of around 2.9%. Furthermore, during periods of high productivity growth, equity returns, adjusted for inflation, have averaged 4.9% compared to 3.5% during periods of low productivity growth. In other words, while a higher neutral rate would be bad for bond prices, it would be very good for stocks. We note that inflation will fall to 2% in either scenario.

The biggest driver of productivity swings is technology. We have seen several explanations for why high productivity growth may persist indefinitely. These range from the doubtful, such as increased telecommuting, to the possible, such as growth in AI. The bad news is that trend-productivity is likely much closer to 1.3% than 3.0%. The FOMC has made it clear that it sees no evidence that trend productivity has risen. The best statistical model available puts the odds of a shift at just 8%.[1] We are also pessimistic, estimating that trend productivity growth has only risen slightly, putting the neutral rate at just 2.9%. This is where we expect the FOMC to stop in 2026. If productivity growth remains very strong through 2024, however, we may change our minds. But in this case, “higher for longer,” would be welcome news.