* Better breadth...

Closing Volume

- NYSE volume 370M shares, 10% below its one-month average;

- NASDAQ volume 4.36B shares, 20% below its one-month average

- VIX: down 3.95% to 12.64

Breadth

% Movers

Nasdaq 100 Heat Map

Wolf Street howls about the Bank of Canada.

I have covered my  (XLU)  short for a very small gain.

I have moved to very large on  (OXY) .

We're adding to  (OXY) ,  (TCNNF)  and  (MSOS) .

Crude has reversed to a gain from the morning lows.

I am adding to  (OXY)  common and calls.

I have covered the balance of my  (AXP)  short rental for a profit.

Volume

- NYSE volume 119M shares, 13% below its one-month average;

- NASDAQ volume 1.63B shares, 21% below its one-month average

- VIX: down 2.20% to 12.88

Breadth

Nasdaq 100 Heat Map

S&P 500 Sectors

I have covered half of my  (AXP)  trading short rental at $233.80 (-$3.50 or -1.55%).

Less than an hour ago I put on this rental:

BY DOUG KASS JUN 5, 2024 9:52 AM EDT

A Small Trading Short Rental

I have taken a small trading short rental in American Express (AXP) at $237.10 based on the eBay (EBAY) news.

Position: Short AXP (S)

From Peter Boockvar:

BoC rate cut/ISM services, mixed internals and see what was said on employment

The Bank of Canada cut rates by 25 bps to 4.75% as expected and hinted at more to come if inflation continues to moderate. The ECB will follow tomorrow.

The May ISM services index rose to 53.8 from 49.4 and that was better than the estimate of 51. The internals were quite mixed though. New orders rose 1.9 pts m/o/m to 54.1 while backlogs slipped a touch to 50.8. Inventories were down by 1.6 pts to 52.1. Employment remained below 50 for a 4th straight month at 47.1, pointing to the slowdown in the labor market.

Here were a few employment comments:

“Companies in most industries continue to be deliberate with employee and nonemployee labor hiring decisions. Concerns about the upcoming election loom large, as well as uncertainty around the current economic climate, particularly inflation.” [Management of Companies & Support Services]

“In general, business has been steady. Hiring is slowing and prices are slightly climbing.” [Transportation & Warehousing]

“We are making adjustments to our employment level, capital investing strategies, and managing borrowed debt to achieve our 2024 financial goals.” [Utilities]

Separately on retail, “Slowdown in economy being felt.”

I also want to add in a quote on employment from today’s S&P Global services PMI before shifting back to the ISM internals, “services employment down for the 2nd month running as firms wait to see whether the renewed rise in new business will be sustained before committing to new hires.”

Helping the headline ISM number was the rise in Supplier Deliveries by 4.2 pts to 52.7 but this figure sort of works backwards. It rises when lead times lengthen (supply chains slower) and falls when they shorten (supply chains quicker). Prices paid fell a touch, by 1.1 pts to 58.1 though about in line with the 6 month average of 58.3.

The breadth was a touch better as 13 industries of 18 asked saw growth vs 12 in April while 5 saw a contraction vs 6 in the month before.

The bottom line from ISM reflects the mixed picture, and was goosed by the supplier delivery component as said. “Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry. Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses. The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions.”

Notwithstanding the mixed internals, Treasuries are selling off on the headline print after the notable multi day rally.

ISM Services Index

New Orders

Employment

Prices Paid

* And no broadening...

Another day and the S&P and Nasdaq higher while the equal-weighted S&P  (RSP)  is down.

I have taken a small trading short rental in American Express  (AXP)  at $237.10 based on the eBay  (EBAY)  news.

GOP Congressional Committee Removes D.C. Marijuana Sales Ban And Adds Cannabis Banking Protections In Key Spending Bill - Marijuana Moment

As of 8:14 a.m.:

Upside:

-MITQ +103% (awarded multi-million dollar contract for state-of-the-art Alamo Drafthouse cinema in Indianapolis)

-WKME +41% (to be acquired by SAP for $14.00/shr in ~$1.5B all-cash deal)

-SFIX +20% (earnings, guidance)

-HPE +16% (earnings, guidance)

-DDD +15% (provides update on dental growth strategy; announces largest contract in company history worth ~$250M over 5 years to support indirect manufacturing process for clear aligners)

-HBI +12% (confirms to divest its global Champion business to Authentic Brands Group for a transaction value of $1.2B plus additional contingent cash consideration of up to $300M)

-CRWD +11% (earnings, guidance)

-LAKE +8.9% (earnings, guidance)

-ESTA +8.3% (Center for Devices and Radiological Health (CDRH) of FDA completed review for Motiva Implants)

-GWRE +8.3% (earnings, guidance)

-VRNT +8.3% (earnings, guidance)

-BYRN +5.0% (reports Q2 prelim revenue)

-ASML +4.0% (TSMC will receive its first high-NA test system this year per CFO comments)

-OLLI +3.6% (earnings, guidance)

-BF.B +2.8% (earnings, guidance)

-LE +2.5% (earnings, guidance)

-AMAT +2.0% (Barclays Raised AMAT to Equal Weight from Underweight, price target: $225 from $165)

Downside:

-SILO -19% (files to sell 917K at $2.18/shr in $2.0M registered direct offering)

-MED -14% (DA Davidson Cuts MED to Underperform from Neutral, price target: $17.50)

-FSM -10% (files to sell $150M in convertible senior 2029 notes)

-IMMP -9.7% (completes ~A$89.6M institutional placement and institutional component of entitlement offer)

-SGRP -9.6% (enters into Letter of Intent to go Private with Highwire Capital at $2.50/shr in cash)

-GDHG -7.7% (files $100M mixed shelf)

-CSTM -3.7% (Trexquant Investment LP cuts stake)

-DLTR -3.6% (earnings, guidance; confirms review of strategic alternatives for Family Dollar business)

At 8:33 a.m.

From Peter Boockvar:

Rate cut odds/BoJ gets another reason to hike/Some data and earnings calls

So the economic data softness driven Treasury rally since mid last week after the poor auction driven selloff has seen the odds of a 2nd Fed rate cut by year end rise to 56% up from just 16% as of one week ago. Of course the jobs data both today and Friday will further influence pricing.

While the Fed is searching for every reason to cut rates (based on the many that keep using the word 'restrictive'), the BoJ is looking for any reason to hike and they got another one overnight with the April wage data. Base pay rose 2.3% y/o/y, reflecting the Shunto negotiations, and up from 1.7% in the two prior months. That is the fastest pace of wage growth in 30 years, yes, since 1994. Unfortunately for Japanese workers though, this is now just keeping up with inflation. JGB yields did fall rather than rise in response and that's most likely due to the sharp Treasury rally seen these past few days and which was followed in Europe. The BoJ meets next week and if no move is made with rates, I expect it in July. The yen is weaker too after the sharp two day rally Monday and Tuesday.

Base Pay Growth in Japan y/o/y

Out too today in Asia were some more PMI's. The private sector Caixin services index for China rose to 54 from 52.5. The service side of their economy continues to do much better than manufacturing and Caixin said "Business activity and total new orders both grew for the 17th month in a row, increasing at the fastest pace since July and May last year, respectively. Notably, growth in total new orders recorded its fourth consecutive month of acceleration, reflecting a strong recovery in demand...Employment expanded following three months of contraction."

On pricing, "Prices rose modestly. Both input costs and prices charged by service providers increased, although the increases were limited. Due to previously persistent weak price levels, their gauges reached the highest levels since last June and January 2022, respectively. The increase in input costs were due to a rise in prices for raw materials, salaries, and transportation fees."

As for the Chinese service outlook, "Market sentiment remained optimistic. Surveyed companies were generally confident about future market prospects, although they expressed concerns over the global economic landscape and growing costs of raw materials." The rising middle class in the decade to come in China, along with the entire Asian region, should not be ignored.

Singapore's PMI rose to 54.2 from 52.6. S&P Global said, "Improvements in demand and output spurred a renewed rise in employment levels, while overall confidence levels also rose." We remain bullish and long stocks in Singapore.

India, on the heels of the election results, saw its service PMI at 60.2 vs 61.4 in April and combined with manufacturing, a composite print of 60.5, outperforming most places in the world.

The revision to the Eurozone services PMI was 53.2, little changed with the initial read of 53.3 and vs 53.3 in April and 51.5 in March. This is where Germany is well outperforming France with a services PMI of 54.2 vs 49.3 in France. Italy and Spain, via their tourist industries, are also doing better.

Ahead of the ECB rate cut tomorrow, S&P Global said "As for trends in prices, the latest survey results showed input cost and output charge inflation rates cooling, but still running above their respective pre-pandemic averages."

The bottom line, and in their opinion, "The specter of recession is off the table. This is thanks to the service sector, where the upswing has recently broadened."

The UK services PMI was 52.9, left unrevised and compares with 55 in April and 53.1 in March. For the UK too, the service sector is driving the about 1% growth in total they have.

Sovereign bonds in Europe are little changed in response as the revisions were tiny. The euro is down a touch while stocks are higher.

Before I get to some earnings calls, the May Logistics Managers Index came out yesterday and it rose 2.7 pts m/o/m to 55.6. They said "this increase was largely a function of positive movements in the transportation market and warehousing utilization. This expansion faced headwinds in the 2nd half of the month however, particularly from inventory levels, which moved from expansion to contraction."

Also of note was pricing as they are rising again "and are mildly above capacity." Their transportation price index jumped 13.7 pts at 57.8 from a contracting 44.1 in April. That's the highest since June 2022. Combine this with rising shipping and air cargo prices and it's something to watch.

They got vocal about the recently announced tariffs on Chinese goods. "Unfortunately, the tariffs that were recently announced by the Biden administration will almost certainly have an impact on the flow of, and price paid for, goods coming into the US...Recently published research from some of the authors of this index found that the 2018 tariffs were financially damaging to both the industries they were meant to protect as well as to their supply chain."

I bashed the Trump tariffs and am doing so again with the Biden ones.

In the Bath & Body Work earnings call they referred a few times to the "dynamic consumer spending environment" and "are taking a prudent approach to our guidance." And, "Our international business was pressured given the war in the Middle East and related softness."

"coming back to traffic, overall traffic was flat for the quarter...transactions were up, driven by conversion."

HP Enterprises talked about their growing AI systems revenue. "Enterprise customer interest in AI is rapidly growing and our sellers are seeing a higher level of engagement." Similar to Dell however, "This year's mix shift from networking to AI systems should weigh on our gross margins." Overall revenue grew 4% y/o/y.

Also, "As we capitalize on the AI growth opportunity, we also see indications of the market recovery in traditional and cloud infrastructure markets. Orders for traditional service grew sequentially and y/o/y, driven by enterprise public sector and SMB customers in North America and Europe."

The CFO said, outside of AI, "The demand environment remains soft and large enterprises have yet to return to the market in force. However, we do see some green shoots that give us confidence that networking will transition to modest sequential growth beyond Q2 as we had expected. Our channel inventory remains within the normal range."

From Crowdstrike, the cyber security company:

"While the macro environment remains challenging, the unique capabilities and data gravity of the Falcon platform, coupled with our Falcon Flex program are driving larger platform deal sizes, consistently strong win rates, and record levels of pipeline for the year. With that in mind, we continue to maintain a consistent and prudent approach to our outlook and assumptions amid a macro environment that remains challenging."

On Tuesday Mr. Market continued the pattern of a rally from early weakness to close higher on narrowing breadth and with the dominance of a handful of large-cap tech equities.

As clear as day there was no broadening:

(RSP)  (equal weighted S&P) -.32%

(SPY)  +0.11%

Nasdaq +0.27%

Russell ( (IWM) ) -1.29%

The market's breadth was poor:

The S&P Short Range Oscillator moved into more oversold at -2.80% vs. 2.19%

Bond prices rallied for the third consecutive day as signposts of an economic cooling rose. That sentiment has resulted in cyclical and consumer equities' weakness and has exaggerated large-cap absolute and relative dominance (which is generally viewed — though perhaps somewhat erroneously — as not being that economically sensitive).

Winnebago  (WGO)  competitor Thor Industries  (THO)  just lowered 2024 sales guidance. 

This should help our "no drama" short of WGO. 

“Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited.”

- George Soros 

Bonus - Here are some great links:

The Bull Market's 2 Year Anniversary

Chart Advisor

Surprising Sector Strength

Let's Get Technical

* More tales of Nvidia...

"What we have learned from history is that we haven't learned from history."

- Benjamin Disraeli

When Nvidia's undefined Jensen Huang starts signing shirts — attention must be paid:

I reestablished a small Index short (common) in  (SPY)  and  (QQQ)  at $529.25 and $455.94, respectively.

Wolf Street howls about the BoJ and the yen.

I agree: