Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

As of 4:56 p.m.:

At 2:30 p.m.:

Out of office at meetings.

No trades since the last action!

Doing little in the market since the last reported trades.

Remember I will be out most of the afternoon at meetings.

I have put on trading short rentals in the following stocks:

* Goldman Sachs GS at $507

* Berkshire Hathaway BRK.B at $440.39

As of 9:43 a.m.:

Breadth

Sectors

New 52-week high in Valvoline VVV  — a relatively new add.

I suppose the shares are benefiting from rotation into mid/small-caps.

Out of short Indices. 

"Price has a way of changing sentiment."

- The Divine Ms M

Over the last week or two the markets have warmed up to a likely Trump presidency.

But, today, the reality of policy risks loom — as the "other side" of policy for both Democrats (see chip/trade front issues this morning that is contributing to lower stock futures) and Republicans (e.g., lowering tax rates for individuals/corporations may be inflationary) — are being reconsidered.

From my perch the markets — on so many levels — has abandoned reality as FOMO (fear of missing out), the animal spirits and a changed market structure have taken over. The fantastic climb has been unquestioned as most (portfolio managers, strategists) have acquiesced to the price advance as bears have been ridiculed.

Of note, on the structure part, passive products and strategies (read: machines and algos) have fueled and perpetuated northerly price direction — they know everything about price and nothing about value. But if the market inflects (lower), as I have warned, the movie and the market (selling) could go in reverse.

We are now materially overbought on almost any measure (oscillator, RSI, surveys, etc.).

Investors may have been looking up to the sky over the last few months but I suspect they will be looking lower over the balance of the year.

As I mentioned yesterday.... ten cuidado.

Shifting a portion of your equity positions for risk free short-term Treasuries (with equity equivalent returns with no risk/volatility) seems to be an ideal consideration now.

From Peter Boockvar:

Housing starts data

June housing starts totaled 1.35mm which was above the estimate of 1.30mm. Also, May was revised up by 37k to 1.31mm. Breaking it down, interestingly single family starts fell by 22k m/o/m to 980k and that is the least since last October and squares with the subdued builder confidence figure seen yesterday. As for multi family starts (lumpy month to month), they totaled 373k which is up from 312k in May and vs the multi year low of 258k in March. It touched 627k at the peak in April 2022.

Permits filed for single family fell to 934k, the least since May 2023. So while the demand for new homes is obvious with not many existing homes on the market (more so now though), the affordability challenge is keeping a lid on new builds. Permits for multi family rose to 512k from 443k and holding in there surprisingly since the economics are just not as attractive for apartment landlords. That said, this figure was between 650k-800k in the peak in 2022 before everything rolled over.

Bottom line, single family builds are slowing as price is expensive, notwithstanding discounting and inventories have built to over 9 months as seen in the new home sales data (covering the different stages of completion). Multi family starts and permits are back to their pre Covid trend but well below the post Covid spike. I expect apartment rents to continue to slow this year and into most of 2025 as so much supply needs to get absorbed but inflect much higher again in 2026 due to the slowdown in supply while tenant absorption continues on because it's so pricy to buy a home for younger people

Upside:

-SHIM +40% (awarded $27.6M Subcontract for Sunol Valley Water Treatment Plant Ozonation Project)

-LGVN +36% (announces US FDA Grants Fast Track Designation for Lomecel-B for the Treatment of Mild Alzheimer’s Disease)

-GTLB +15% (said to be exploring a sale after attracting acquisition interest, including from Datadog)

-VCNX +12% (to report topline data for SIGNAL-AD Phase 1b/2 trial of Pepinemab in Alzheimer’s Disease at the Alzheimer’s Association International Conference, Philadelphia, July 31, 2024)

-BE +11% (Bloom Energy and CoreWeave Partner to Revolutionize AI Data Center Power Solutions)

-AEHR +9.3% (earnings, guidance)

-ORIC +8.2% (announces Initiated dosing of ORIC-944)

-VFC +8.1% (to divest Supreme brand to EssilorLuxottica for $1.5B in cash)

-ACRS +7.5% (announces sale of OLUMIANT Royalties and Milestones to OMERS Life Sciences for up to $31.5M)

-BYRN +5.5% (equips City of Buenos Aires police with 500 launchers)

-GMED +3.0% (receives FDA 510(k) Clearance for ExcelsiusFlex and ACTIFY 3D Total Knee System)

-NTRS +2.6% (earnings)

-WAFD +2.0% (earnings)

Downside:

-SAVA -29% (CEO departs)

-PET -17% (prices 7.4M shares at $1.35)

-FIVE -14% (names new CEO, cuts guidance)

-ASML -7.9% (earnings, guidance)

-SAVE -5.4% (cuts Q2 guidance)

-DDOG -3.4% (said to have expressed interest in acquiring GTLB)

-OMC -3.4% (earnings)

-FLWS -3.2% (DA Davidson Cuts FLWS to Underperform from Neutral, price target: $8)

-JBHT -2.9% (earnings, guidance)

As of 8:04 a.m.:

As of 8:23 a.m.:

From Peter Boockvar:

The Trump Trade goes both ways and the BoJ and MOF get some relief/Other good stuff

We're realizing again that the Trump Trade goes both ways and markets are responding to the Bloomberg interview. Tariffs of 60% might not be enough and 100% could be the rate we heard. Biden though doesn't disagree as we've seen his administration slap that on some more Chinese products and I'll call out both sides for their obsession with tariffs and the overall damage it does. People forget that the 2018 tariffs put the US manufacturing sector into a recession and we've been in another one for the past two years. Another tariff battle is a bad thing. Another economic fight with the 2nd largest economy is a bad thing. There is also a story this morning that the Biden administration will further limit the sale of chip related products to China. The daily bashing of China will continue until the election, at least, it seems.

Also, the euro/yen heavy DXY is trading at the lowest level since March 20th as we were reminded that Trump doesn't like a strong dollar either. "We have a big currency problem he said." The yen in particular is having a good day. The Ministry of Finance in Japan is getting a free ride today on someone else's verbal FX intervention.

As for Taiwan, Taiwan Semi is down almost 4% pre market and who is going to make Nvidia's chips if China takes advantage of the Trump comments?

As for Jay Powell, he's now apparently welcome to stay on until his term ends to deal with the inflationary implications of all these tariffs and a weak dollar (though usually ones currency would rise with tariffs imposed on others).

Positively, a 15% corporate tax rate would make Corporate America and doing business in the US even more competitive. Just see how many companies have gone to Ireland to do business.

Politics and policy is certainly a lot about trade offs for sure.

Fed Governor John Williams is seemingly telling us that we won't be getting a surprise July rate cut. He said yesterday (posted today) in a WSJ interview that while they are gaining more confidence on the disinflationary trend, "I would like to see more data to gain further confidence inflation is moving sustainably to our 2% goal." 'Sustainably' again the key word.

I've been trying to square what I've seen from a variety of retailers over the past few months with the big upside seen yesterday with the non auto retail sales (impacted by the CDK software problem). My buddy David Rosenberg helped by saying "A very generous seasonal factor was at play. The raw NSA data actually showed retail sales plunging 5.6% m/o/m in June, the worst drubbing in a decade and tied for the steepest plunge since the series began in 1992!"

The British pound is now above $1.30 for the first time in a year, helped by the Trump comments but also a CPI print that came in higher than expected that is seeing Gilt yields jumping too. While headline CPI was up just 2% y/o/y, the core rate was much higher at 3.5% because of a 5.7% service price increase, all one tenth above expectations. The BoE won't likely be cutting rates in August. The positive though was softer than expected PPI figures for both input and output charges.

Let's get to some earnings call comments of note.

From Bank America:

"in previous calls, many of you asked questions or commented upon the question about consumer net charge-offs and when would they stabilize in the 2nd half of 2024. That expectation we have remains unchanged as well. This quarter's net charge-offs were 59 bps. And for context, this is a stabilization of the rate. I would just remind you that prior to this quarter, I have to go all the way back to 2014 to see a charge-off rate that high. And that's near when we were still emerging from the financial crisis."

"we highlight the 30 and 90 day plus credit card delinquency trends, which show delinquencies have plateaued for the 2nd consecutive quarter."

"The modest improvement in overall commercial loans included a 2% increase in our domestic commercial loans and leases, partially offset by a 4% decline in CRE."

"Consumer growth was driven by credit card borrowing, and while home lending balances were flattish, originations picked up a bit this quarter."

Richemont in their quarterly update yesterday cited "Persistent macroeconomic and geopolitical uncertainties" impacting their business. Particular weakness was seen in China with growth in other regions partially offsetting this.

Five Below lowered guidance (along with firing its CEO) but didn't give color as to the factors but I'm sure we can guess based on what we've heard from others about the lower to middle income consumer.

From JB Hunt:

"while we have seen some moderation in inflationary cost pressures, the deflationary rate environment continues to pressure our margin performance." Trucking prices remain subdued because of still too much capacity.

To this, "As we look at the overall freight market, we still see oversupply across all modes with shippers having options on both mode and provide to move their freight."

For the 7% y/o/y revenue decline they blame "A combination of either lower volumes and/or yields, but most notably lower rates."

"Our customers have worked through most of their excess inventory and feel appropriately rightsized with current sales activity levels. While we cannot predict when the market will inflect, our customers know we stand ready to meet their growing transportation needs across our entire scroll of services." I'll add, the entire manufacturing world is waiting for that inventory restock inflection.

They commented on what is going on with ocean container rates and as a result "some customers have pulled a portion of their peak freight forward a couple of months given the multiple macro factors that could impact the supply chain later this year. This pull forward has created an early peak on the water, but that hasn't translated into domestic inland moves just yet."

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

From JPMorgan:

Futs are weaker with Tech dragging down SPX/NDX as both Semis and Mag7 are being sold pre-mkt with ASML -6% on negative geopolitical headlines; TSM reports tmrw. Pre-mkt AAPL, NVDA, TSLA, AMD, MU, AVGO, MSFT, AMAT all down 1.4% - 4%. RTY futs are positive, illustrating support for a continued rotation. The yield curve is twisting flatter as USD weakens. Cmdtys are lower with Energy/Metals in the red though Ags are strong and WTI is flat. Today’s macro data focus is on Housing data, Industrial Production, and the Fed’s Beige Book. There are 2x Fedspeakers and the 20Y bond auction which Jay Barry thinks is likely to require a concession.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, Retail Sales totaled $704.3bn which was 0.0% MoM but +2.3% YoY. 2024Q2 sales were +2.5% YoY. The Control Group, which excludes things such as autos and gas was +0.9% MoM. My comments immediately after the print:

A very strong print that should help the market move back to the Goldilocks-ish “growth without inflation narrative” and supports our hypothesis on cash levels remaining high despite the SF Fed view that “excess savings” have been extinguished. On that point, BofA earnings release today point to consumer cash levels being 40% higher than in 2019. What does this all mean … to me this is a data point illustrating the resilience of the consumer and a consumer that could see a positive growth rebound in 24H2 as disinflation continues, businesses gain confidence, and fears of job losses subside. For markets, this is something that should continue to support the barbell approach to investing with some Tech (Mag7, Semis) and some Value/Cyclicals (Banks, Credit Cards, Autos/Suppliers, Homebuilders) among others.

This line of thinking holds and is aligned with our tactically bullish view based upon at/above trend GDP growth, positive earnings, and a paused/easing Fed. We may be approaching a time where those 3 pillars of the bull case are inflecting bullishly: (i) GDP – using Economic Surprise indices as a proxy for the market’s view on the economy, we may be at the beginning of an upward trend after 2.5 months of the index sitting in negative territory; (ii) Earnings – while it is very early in the season, both revenue and EPS growth are exhibiting upward biases to consensus views of ~4.5% revenue growth and ~8.5% EPS growth; (iii) Fed – Powell seems to be satisfied with the data to begin easing, albeit perhaps not at the July meeting. Markets are now pricing in a potential for a 50bps cut at the September meeting with both Sep and Dec fully priced.

The above conditions set the stage for a rotation that has lasting power even if expectations for a pullback in late Summer / early Fall come to fruition. At the end of 24Q2, SPX was +14.5%, NDX +17.0%, and RTY +1.0%. After yesterday’s close, SPX is +18.8%, NDX +21.2%, and RTY +11.7% as RTY produced its largest outperformance relative to SPX in a 5-day period, including RTY outperforming by nearly 10% since last week’s CPI print.

“If you want to be lucky, do your homework.”

- Jim Rogers

Bonus — Here are some great links:

Big Gains for Small Caps

Mid Cycle Behavior 

Small and Mid Caps Will Lead

Two Uptrends

* One good, one bad...

1. Biden Tells NAACP He Is 'Making Sure' People Aren't Jailed For Marijuana Possession - Marijuana Moment (A Positive!)

2. Pennsylvania Dispensaries Omitted From Medical Marijuana Industry 280E Tax Relief Due To Drafting Error In Bill Governor Signed - Marijuana Moment (How Dumb Can Our Legislators Be?) 

The S&P Short Range Oscillator stands at a deep overbought reading of 8.28% (vs. 5.59% the day before).

My advice? Ten cuidado.

Wolf Street howls about the U.S. economy.

* At around 4:20 a.m..... (money never sleeps at Seabreeze!)

Stock futures are dramatically lower in the early going.

I have neutralized my short SPY and QQQ calls buy purchasing SPY ($560.46, -$4.50) and QQQ ($489.42, -$6.40)

I have no Index positions on now. 

I plan to reshort any strength.