Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

 As of 4:28 p.m.:

Here's a look at companies reporting earnings today after the close and pre-open tomorrow morning.

After the close Thursday July 18, 2024

Before the open Friday, July 19, 2024

As I mentioned, I am off to spend time with my family.

I might stop back a little later depending on market circumstances.

As of 12:13 p.m.:

Market Breadth

S&P Sectors

Housekeeping item.

I just covered my Goldman Sachs GS trading short rental under $495 for a quick profit.

I suspect this will be a poor cover if I look back in a few weeks.

But a trade is a trade.

The machines and algos have gone wild.

The minute-by-minute market gyrations are abnormal.

Trade accordingly...

I added to the following shorts this morning: BRK.B, GS, APO, KKR, BX.

Oaktree's Howard Marks on "The Folly of Certainty" (oaktreecapital.com)

From Peter Boockvar;

No surprise with ECB/Claims reverting higher again/Philly mfr'g the pleasant surprise

Firstly, no surprises yet with ECB statement and Lagarde’s presser so far. Another rate cut this year is likely but maybe is the caveat as the statement said again that “domestic price pressures are still high” and they are “not precommitting to a particular rate path.” Sovereign bond yields in Europe are little changed.

So after the holiday influenced initial claims figure last week that saw it fall to 223k (revised up by 1k), this week’s number reverted back to the higher trend at 243k and that was well above the estimate of 229k. It matches the highest print since August 2023. Smoothing out the noise saw the 4 week average move to 235k from 234k and that is just below the highest since last August.

Reflecting the continued moderation in the pace of hiring’s, continuing claims rose to 1.867mm from 1.847mm, about 10k more than expected and the highest since November 2021.

Bottom line, the pace of firing’s continues to tick up while those who are already collecting benefits does as well.

4 Week Avg Initial Claims

Continuing Claims

After the NY manufacturing index reflected another month of contraction, the July Philly index surprised us with a print of +13.9, up from +1.3 in June. The estimate was +2.9. The Philly region has been the positive outlier relative to both its regional peers and the national number as it is now above zero for the 6th straight month.

New orders rose to the highest since March 2022. Backlogs stayed positive at 9.1. Maybe the optimism is based on still deeply negative inventories that just maybe needs some restock. The inventory component was -9.4. Employment rebounded to +15.2 but the workweek was negative. Prices paid fell 2.7 pts but after rising by almost 4 last month. Of note, prices received jumped to 24.2 from 13.7 and that is the highest since January 2023.

Looking out six months, expectations for growth rose to 38.7 from 13.8 in June and 32.4 in May (yes, all these internal data points are very volatile month to month). Capital spending plans though fell to 7.4 which is the lowest since December. Of note here on inflation, expectations for prices paid rose to the highest since April 2022.

There was a special question asking about wage growth and said this. “The firms still expect cost increases across all categories of expenses in 2024, and the median expected increases were in line with or slightly higher than expectations for most categories when this question was last asked in April. The responses indicate a median expected increase of 3 to 4 percent for wages and of 4 to 5 percent for total compensation (wages plus benefits), both unchanged from April.”

Unless productivity growth offsets this, we are not SUSTAINABLY going back to 1-2% inflation if these expectations are realized. Or instead, profit margins get squeezed which is always possible.

Bottom line, hopefully the Philly region is the beginning of a bottom with US manufacturing but much depends on the follow thru of any inventory rebuild, sketchy signs of it to date, and the consumer end demand for stuff.

Philly Mfr’g

New Orders

Prices Received

Expectations for Prices Paid

Expectations for Capital Spending

I have added to these two short trading rentals (GS and BRK.B):

2 Trading Short Rentals

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

* Goldman Sachs (GS) at $507

* Berkshire Hathaway (BRK.B) at $440.39

From Peter Boockvar:

Sentiment now so giddy that a correction is ripe/Shipping cost update/Earnings comments/Overseas

Measured before yesterday's selloff, the level of bullishness continues to get even more extreme. In the Investors Intelligence survey, the Bull/Bear spread rose to 46.9, the most since 2021 with Bulls up at 63.6 vs 62.7 last week. Bears slipped to 16.7 from 17.9. In today's AAII survey, Bulls rose another 3.5 pts to 52.7, the most since December and just .3 pts from a level last seen in April 2021. Bears did tick up too, with the balance going to the Neutral side, to 23.4 from 21.7 in the week prior. 

Bottom line, combine the above with the continued rise in Euphoria as measured by the Citi index and we are ripe for more than just a one day correction in order to shake out this giddiness. It could be perfect timing too with big tech earnings over the next few weeks. 

AAII Bulls

After taking a rest last week, shipping costs continue to rise as measured by the World Container Index on particular journeys. The Shanghai to Rotterdam trip now costs $8,267 for a 40 ft container vs $1,667 at the beginning of the year and vs around $2,000 in February 2020. While still well below the nearly $15,000 seen in October 2021, it's the most expensive in two years. We did get relief though on the Shanghai to LA route where prices fell $224 w/o/w to $7,288, though which still compares with $2,100 at the end of 2023. I'll stretch this view out and mention the Shanghai to NY trip as prices here rose $225 w/o/w to $9,612, tripling this year. It was about $2,800 in February 2020 and peaked at $16,138 in September 2021.

Bottom line, I'll say again, someone is going to have to eat these sharp gains, especially ahead of the holiday shipping season. We are seeing evidence that companies are front loading their shipments so as not to get caught short ahead of the holidays which in turn could be helping to lift shipping prices overall.

WCI Shanghai to Rotterdam

WCI Shanghai to LA

Shanghai to NY

Moving on to some earnings calls.

Taiwan Semi's CEO said on its AI chip business, "The demand is so high, I had to work very hard to meet customer demand." On the inventory side, "The supply continues to be very tight all the way into 2025 and hopefully we can ease in 2026...We continue to increase capacity wherever we can, whatever we can." Chip stocks are bouncing a touch in response after yesterday's selloff.

Leslie's is following what Pool Corp said last month and is lowering guidance.

"The cold and wet spring weather we experienced during the fiscal 2nd quarter extended through May, reducing the number of pool days in non-seasonal markets and delaying the start of pool season in seasonal markets. We also continued to see weakness in large ticket discretionary categories as persistent inflation and high interest rates pressure pool owners' wallets. We experienced improved sales trends in June, but the April and May revenue impact created negative operating leverage and gross margin headwinds. While we are encouraged by improved June trends, our revised full year outlook at the midpoint assumes 3rd quarter sales performance continues through the 4th quarter." June sales though still fell y/o/y.

We await the United Airlines conference call but they said this on the excess capacity in the industry that has led to lower ticket prices. "Looking forward, we see multiple airlines have begun to cancel loss-making capacity, and we expect leading unit revenue performance among our largest peers in the 2nd half of the 3rd quarter. United has long been preparing for the moment when industry wide domestic capacity would adjust - it's now clear that inflection point is just 30 days away." We'll be watching thereafter as to what this does for airline ticket pricing.

From US Bancorp:

Average total loans rose 1%. "The increase was driven by higher credit card loans from high spend volumes and increased commercial loans from growth in corporate banking. Loan growth this quarter was partially offset by lower CRE and other retail loans."

On credit quality, "Asset quality metrics continue to develop in line with expectations and we remain appropriately reserved for potential adverse economic conditions."

Here was the lay of the macro land from Alcoa with respect to their end markets:

"While supply growth has remained limited, global demand continues to increase y/o/y. This has kept global inventories at historically low levels. Digging deeper on demand, this year, several trade defense actions in North America and Europe have been implemented, which are likely to support demand in those regions. Overall, there is a strong recovery in the packaging segment. Electrical and transportation remained solid too, even though growth in the automotive segment has slowed in recent months, particularly in Europe. Building and construction remains the most challenged sector."

Japan said its June exports were up by 5.4% y/o/y, below the estimate of up 7.2% and not getting the weak yen help that was anticipated and also likely reflecting the still muted global demand for goods relative to services. As a weak yen too makes all imports more expensive, imports grew by 3.2% y/o/y, well under the estimate of up 9.6%. We all await what the BoJ will do in a few weeks but the Nikkei did sell off by 2.4% overnight and the yen is a touch weaker after the run higher over the past week. JGB yields were little changed.

There wasn't much response in the Aussie$ and bond yields in Australia but their June jobs number was much better than expected. Employment rose by 50.2k, more than double the estimate of up 20k. Though their unemployment rate did tick up by one tenth to 4.1% as expected.

The ECB meets today but nothing new is expected as they digest their previous rate cut and feel out the data for when they might again.

The UK reported jobs data about as expected and with no change in their unemployment rate of 4.4% for the 3 months ended May. There was though another rise in June jobless claims of 32.3k after jumping by 52k in May. Those are the two biggest back to back increases since 2020.

Wage growth thru May was up 5.7% y/o/y ex bonuses' and partly helps to explain why service price inflation is still running hot as productivity gains in the UK remains muted. At least though wage growth is exceeding inflation. Nothing here to give the BoE reason yet to cut rates and gilt yields are little changed as is the pound but we watch that jobless claims number. The FTSE 100 is higher and we continue to be long and bullish on some UK stocks, particularly in energy and liquor.

Here are the most active exchange-traded funds as of 8:14 a.m. ET:

Upside:

-CHUY +47% (Darden Restaurants, Inc. to acquire Chuy's Holdings, Inc. for $37.50/shr in all-cash transaction valued at $605M)

-BCTX +17% (progression free survival (PFS) extended to 9.1 months in ADC resistant patient, quadruple the PFS of patients in similar studies with “Eye-Bulging” Metastatic Breast Cancer)

-ZIMV +15% (Osstem reportedly in talks to acquire ZimVie)

-VIRT +8.4% (earnings)

-WBD +6.4% (mulls possible split of digital streaming and studio businesses from legacy TV networks)

-LILM +5.1% (announces firm order for 50 Lilium jets with an option for 50 more)

-NRBO +4.8% (presenting at the Emerging Growth Conference; files to sell 17.2M shares through PIPE)

-INFY +4.7% (earnings, guidance)

-INBS +4.1% (advances on FDA 510(k) Pathway with Biocompatibility Study Success)

-MMLP +3.3% (earnings)

-TOST +3.3% (Mizuho Securities Raised TOST to Buy from Neutral, price target: $33 from $21)

-DFS +2.5% (earnings, guidance)

-FTNT +2.5% (TD Cowen Raised FTNT to Buy from Hold, price target: $75)

-PWR +2.5% (acquires Cupertino Electric, Inc. (CEI), a premier electrical infrastructure solutions provider for $1.54B in cash-stock)

-GPS +2.4% (Morgan Stanley Raised GPS to Overweight from Equal Weight, price target: $29 from $27)

-NVDA +2.4% (strength following TSM earnings)

-SQ +2.2% (William Blair Raised SQ to Outperform from Market Perform)

-AMD +2.0% (strength following TSM earnings)

Downside:

-AGEN -63% (FDA discourages accelerated approval pathway for colorectal cancer therapy)

-LESL -17% (earnings, guidance)

-BYND -15% (reportedly engaged with a group of bondholders to start talks about a balance-sheet restructuring)

-DPZ -12% (earnings, guidance)

-HXL -4.3% (earnings, guidance)

-NOK -4.1% (earnings, guidance)

-NVS -3.0% (earnings, guidance)

-BX -2.1% (earnings)

-KMI -2.1% (earnings, guidance)

-KEY -2.0% (earnings, guidance)

-OZK -2.0% (earnings, guidance)

As of 8:35 a.m.:

I am planning to spend some time with my family this afternoon.

So my posts will be less frequent and shorter than normal.

The market's rotation over the last few weeks has been as extreme and as violent as I can ever recall. As an example, I noted yesterday that the Russell Index is a nearly unprecdented 4.5 standard deviations above the 50-day moving average.

And so has hourly/intraday volatility increased.

The violence and lack of predictability of the moves are unplayable for most.

If you do "play" I would strongly recommend to consider your portfolio's VAR ("value at risk") — and reduce your trading positions in size to accommodate the above volatility and uncertainty.

I am taking my own advice.

Blackstone BX missed EPS by four cents.

Here is the release.

More later.

Democratic Party Touts Biden Marijuana Reform Actions, But Declines To Endorse Decriminalization, In 2024 Platform - Marijuana Moment

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

From JPMorgan:

US: Futs are higher, led by Tech. Pre-mkt, Semis are seeing some relief as TSM earnings beat expectations. NVDA +2.7%, AMD +2.1%, AVGO +1.3%. Mag7 names are higher, too, with VRT +1.7% pointing to potential gains in second derivative AI plays. Yields are higher 2-3bps with the belly underperforming; USD starts the day higher. Cmdty weakness continues with pockets of strength in precious metals and natgas (WTI is flat). Today’s macro data is focused on jobless claims and 3x Fedspeakers.

and...

EQUITY AND MACRO NARRATIVE: Given yesterday’s price action, there were a number of questions of whether this is end of the bull run, beginning of a correction, as well as whether we had exhausted the rotation. NDX had its worst day since Dec 2022 and Semis had their worst day since Mar 2020. Given those moves, I wrote the following to several clients:

GENERAL THOUGHTS (July 17 at 1.15p): I think today's price action is a massive overreaction triggered by geopolitical fears regarding Semiconductors. ASML/NVDA and everything being sold. That is taking the market lower but think that rebounds over the next 1-2 weeks.

In terms of the Rotation, it is a good sign to see both Energy and Fins in the green today and RTY outperforming SPX on the move lower. A month ago, with SPX -1.4% you'd probably see RTY down 3-3.5%.

I think the macro data has delivered us a Goldilocks setup (CPI, Retail Sales, and Industrial Production). Now, we need to see some more earnings support which could begin again tmrw with Blackstone (BX) and Netflix (NFLX) reporting tmrw and American Express (AXP) on Friday. Next week we kick off Mag7 earnings with Tesla (TSLA) which does not end until Aug 23 with Nvidia (NVDA).

“The best profits in the stock market are made by people who get long or short at extremes and stay for months or years before they take their profit.”

- Charles Dow

Bonus — Here are some great links:

Monthly Expiration Week

The Dollar Can’t Stop Stocks

What About the Rut?

I am not a fan of patting myself on the back — as the market is a fickled thing and I am often wrong (and always in doubt!).

But Tuesday morning's Trade of the Week (shorting QQQs) was among my best, as, on Wednesday the QQQs experienced their worst performance since December 2002.

Indeed the Trade was probably my best short-term prognostications in years:

Here was what I wrote:

Trade of the Week: Short QQQ

My trade of the week is to short the (QQQ) at $496.85.

Rationale:

* Overall markets are overbought.

* Rotation out of tech and into Trump plays (infrastructure, healthcare, energy) is possible, given the former President's large lead in the polls.

* How much more can the Mag7 be pumped (considering the outperformance over the last year?

* Accelerated insider selling in Mag7 (see Bezos/Amazon (AMZN) etc.)

There is more but I wanted to get this out post haste...

Position: Short QQQ calls (S)

BY DOUG KASS JUL 16, 2024 10:09 AM EDT

And here as well:

Minding Mr. Market: Ten Cuidado

"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.

Position: None

BY DOUG KASS JUL 17, 2024 9:40 AM EDT

Wolf Street howls about the Mag 7 stock market losses.