As of 4:15 p.m.:

Wolf Street howls about cash reserves.

* To stay abreast and as a reminder — I introduced this new column last week.

* The column recaps the meaningful trading/investing moves that I did during the trading session.

* Please give me feedback in the Comments Section if this is helpful or if you would like me to add anything to the column.

I came into the day about market neutral and I plan to end the day small long:

* Added to MSOS $6.79, SLB $39.79, OIH $270.72.

* Sold small DKNG $39.

* Shorted more SPY and QQQ, small.

* Added to OXY calls.

Adding to Schlumberger SLB at $39.80 now.

Scott Galloway's No Mercy/No Malice on "Doing The Minimum." 

I pressed my Nasdaq short on strength.

And I am making another stupid and ludacris forecast!

I am paring back my DKNG after a good run.

Low Nasdaq Volume

- NYSE volume 3% above its one-month average;

- NASDAQ volume 13% below its one-month average

Breadth

S&P 500 Indices

Nasdaq 100 Heat Map

From Peter Boockvar: Succinct Summation of the Week’s Events:

Positives,

1)Net worth as a % of disposable income in Q2 rose to the 2nd highest on record at 785%.

2)The August PPI was about in line with expectations when we include the July revisions. The headline rate was up 1.7% y/o/y vs 2.1% in July. The core rate grew by 2.4% y/o/y vs 2.3% in the month before. Core goods prices were up by .2% m/o/m and 2.1% y/o/y. On the service side, prices rose .4% m/o/m and 2.6% y/o/y.

3)Import prices in August fell .3% m/o/m, one tenth more than expected. Ex petro saw prices all one tenth vs the estimate of up .2%. It also fell one tenth ex fuel/food. Versus last year, headline import prices are up .8% and by 1.1% core.

4)With another drop in mortgage rates to 6.29%, purchases lifted for a 3rd week, up by 1.8% w/o/w. Refi's were higher by .9% w/o/w.

5)Container shipping rates continue to cool, certainly a good thing as companies are rushing to get product ahead of the holidays. The World Container Index price for a 40 ft box in the trip from Shanghai to Rotterdam fell by $1,067 w/o/w to $5,152, the least since May. It still though is well above the about $1,700 level it stood at in the beginning of 2024. The route to LA saw prices fall by $403 w/o/w to $5,627, also the lowest since May but up from $2,100 at year end 2023.

6)The preliminary September UoM consumer confidence index rose a touch m/o/m to 69 from 67.9. The estimate was 68.5. This compares with the 101 print in February 2020 and the June 2022 low of 50 (which coincided with the peak in inflation). Both main components were higher. The one year inflation expectation figure was 2.7% from 2.8% but the longer term view rose to 3.1% from 3%. The internals were mixed as employment expectations fell to match the lowest level since June 2023 and the income component softened too. "A rising share of consumers reported hearing negative news about unemployment, from 25% last month to 29% in September, the highest since May 2023." Also of note, while inflation expectations fell and because higher income expectations did too, the mean % of those 'expecting family income will beat inflation over next 5 years' fell to just 25.5%, the smallest figure on record dating back to 1997. There was a bounce in spending intentions, helped by lower price expectations of durable goods, and hopes for lower interest rates.

7)From ABM Industries: "on the labor front, we're feeling really good because wages haven't been rising to the same extent as they were in the last couple of years. And that's been widely publicized, you could read about that. So, that's playing through for us. And also, availability of labor is getting much better for us, as well, in terms of getting people on board quicker."

8)From RH: "demand was up 7% in the 2nd quarter and has continued to inflect positive, gaining momentum each month with July finishing up 10%. Demand accelerated into the 3rd quarter with August up 12% and product margins inflecting positive despite operating in the most challenging housing market in three decades...Despite expectations for industry conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout 2024 and into 2025."

9)From Signet Jewelers: "we continue to see momentum in same store sales, improving more than 5 points from the 1st quarter, led by strong fashion sales, to deliver results in the top half of our expectations...Engagements also improved in the 2nd quarter by approximately 400 bps on a same store sales basis. As predicted, the engagement recovery is happening...customers are approaching engagement in a more cautious way in this macro environment, slowing the recovery. For example, customers are visiting our sites 15% more often than a year ago before making a purchase."

10)I’ll give the ECB a positive on their 2nd rate cut to 3.50% but job will be tougher from here.

11)The UK reported a stronger than expected job gain for the 3 months ended July of 265k vs the estimate of 123k. The unemployment rate fell one tenth to 4.1%. Wage growth remained well above inflation at 5.1% y/o/y ex bonuses thru July, as expected, though down from 5.4% in June in part due to tough comps.

12)Taiwan, the home of Taiwan Semi of course, said exports in August grew by 16.8% y/o/y, about double the estimate of up 8.5% and to a record high. Shipments to the US led the way as we are their top export destination. Their economic ministry said, "August's export value hit a record as business for AI and high-performance computing continued to be strong, as well as international brands stocking up on new products."

13)China said its August exports rose by 8.7% y/o/y, above the estimate of 6.6%. It was led by autos and shipbuilding.

14)China's August CPI rose .6% y/o/y vs .5% in July but one tenth below expectations. The core rate was little changed, higher by .3% y/o/y and has been below 1% for a 6th straight month.

Negatives,

1)Net worth as a % of disposable income in Q2 rose to the 2nd highest on record at 785%.

2)August CPI rose .2% headline and .3% core m/o/m with the former as expected and the latter one tenth above. Due to rounding, the y/o/y figures were in line at 2.5% and 3.2% respectively. Energy prices were down by .8% m/o/m and 4% y/o/y. Food prices rose .1% m/o/m and 2.1% y/o/y. Eating out continues to be where the food inflation is as prices here rose .3% m/o/m and 4% y/o/y. Offsetting this is eating at home as prices were flat m/o/m and up just .9% y/o/y. Services inflation ex energy rose .4% m/o/m and 4.9% y/o/y and continues to be driven by higher rents as calculated here. On the goods side, core prices fell for a 3rd month, by .2% and down by 1.9% y/o/y.

3)The NY Federal Reserve released its August results of its Consumer Expectations survey and the inflation guesses both 1 yr and 5 yrs out were unchanged at 3% and 2.8% respectively. The 3 yr finger in the air guess was 2.5% vs 2.3% in the month before. Price expectations grew for homes, gas, rents and medical care and fell for food and college. Employment expectations weakened as the mean probability of those expecting a rise in unemployment rose to 37.7% from 36.6% in July. On the other hand, there was a reduction in those thinking they personally would lose their job. Income expectations rose slightly as they did for spending. On the credit side, "Perceptions of credit access compared to a year ago improved with a smaller share reporting tighter conditions compared to a year ago." However, and especially of note, "The average perceived probability of missing a minimum debt payment over the next three months increased by .3 percentage point to 13.6%, its 3rd consecutive increase. The current reading is the highest since April 2020."

4)Normalizing after the Labor Day holiday, initial jobless claims totaled 230k, 4k more than expected. To smooth this out, the 4 week average is 231k vs 230k in the week before. Continuing claims at 1.85mm were as forecasted, up 5k w/o/w.

5)The August NFIB small business optimism index fell to 91.2 from 93.7. That is a three month low. The bottom line from the NFIB doesn't read well, "The mood on Main Street worsened in August, despite last month's gains. Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen."

6)Notwithstanding the drop in mortgage rates and expectations that they will continue to fall, the August Fannie Mae Home Purchase Sentiment index out on Monday rose just .6 pts to 72.1. They said, "Despite significantly greater optimism that mortgage rates and home prices will move in a more favorable direction for potential homebuyers, most consumers remain apprehensive about the housing market and continue to point to the lack of affordability and supply as the chief reasons for their pessimism."

7)The August Manheim wholesale used vehicle index that rose 1.2% m/o/m. They said "The trend of higher wholesale values at Manheim continued into August from July, as we saw prices appreciate every week except the last. Sales conversion continued to rise and held at much higher levels than prior years for the month as more buyers came to markets to replenish supply for used retail inventory. We know lease maturities are on the decline, and used retail days' supply has tightened over the last month. That will likely keep pressure on buyers at Manheim in the next several weeks."

8)From Kroger: "Customers continue adjusting to the current economic environment. The reduction of excess savings built up during the pandemic, higher interest rates, and the effect of inflation are pressuring customers' ability to spend. This is especially true for our most budget conscious customers, as we've been seeing for a while now. But we're now seeing other customer segments beginning to make changes as well. Customers are purchasing lower price cuts of meat, buying less, and focusing on essentials. Budget conscious customers are buying more at the beginning of the month to stock up on essential items and groceries. And then as the month progresses, they are more cautious with their spending."

9)From Oxford Industries: "While most underlying economic indicators remain reasonably strong, the cumulative effect of several years of inflation may be catching up with the consumer. Simultaneously, the 2nd quarter was also marked by several national and global noteworthy events that led to a more distracted consumer at several points over the summer. Certain factors that we may believe may have amplified these headwinds with respect to our particular business include, first, our focus on affluent 45 and up customers, who tend to be more headline and market sensitive; 2nd, our significant exposure to Florida, which accounts for over a 3rd of our bricks and mortar business and grew at an exceptional pace coming out of the pandemic, but has slowed down as the new post-pandemic world settles in."

10)From Dave & Buster’s: "It is a tough kind of consumer environment, it's complicated, and there are headwinds in this business, and we felt those headwinds in the 2nd quarter. And they're still there...June and July were tougher months. And so the summer months were just a little more challenging than where we started the quarter. And, we're not alone. Many others felt that same pressure."

11)From Academy Sports & Outdoors: "The active young families that we primarily serve remain under financial pressure. They're struggling with reduced spending power driven by price inflation, coupled with higher credit card debt and delinquencies, both of which remain well above pre-pandemic levels. We continue to see these factors constrain household spending on discretionary goods in the near term."

12)From Ally Financial at the Barclays conference: "Over the course of the quarter, our credit challenges have intensified. Our borrower is struggling with high inflation and cost of living and now, more recently, a weakening employment picture...In July and August, we saw delinquencies up about 20 bps vs our expectations." They expect it to keep rising "just given the size of this population of struggling borrowers...And so that's really kind of one of the things that's put us on notice around credit development."

13)From Dow Chemical: "In the near term, we're seeing muted demand across most of our market verticals. We continue to see resiliency in packaging, particularly in North America for both domestic demand and exports, which led to price increases in July. Infrastructure demand, which for us includes residential construction, remained soft across all regions, primarily due to historically high interest rates...Demand for consumer electronics and home and personal care applications is steady. However, tighter discretionary spending has led to consumers delaying non-essential spend in durables...And in mobility, we're beginning to see softer demand materialize across all regions following solid growth in the first half of the year, which was driven by pent-up demand."

14)The UK economy in July saw no growth m/o/m vs the estimate of a gain of .2% with weakness in manufacturing offset by slight growth in services.

15)In the UK in August, payrolls fell by 59k vs the estimate of up 25k. After a spike in July which I can't explain of 102k, jobless claims in August grew by 23.7k.

16)The September Sentix investor confidence index on the Eurozone weakened to -15.4 from -13.9. That's the weakest since January. From Sentix, "The economy in the Eurozone remains under pressure...The economy is threatening to tip into recession. Once again. As an EU heavyweight, the German economy is playing a major role in this...The German economy is collapsing in the open. The only hope is that it is probably the 'last days of the traffic lights' that are paralyzing the country."

17)China imports in August were flattish, up .5% vs the estimate of up 2.5%. About 30% of China's imports eventually make their way into an export.

18)China PPI fell 1.8% y/o/y in August, more than the forecast of down 1.5%.

Energy stocks pick up a bid.

From Peter Boockvar:

We are just so dependent on elevated asset prices/Gary Friedman speaks and some other interesting earnings comments

The Fed issued its new Q2 flow of funds statement (h/t DDB for heads up) yesterday and my favorite chart has now been updated. It is of household net worth as a percent of disposable income. It's basically measuring the level of asset prices relative to the broad economy and highlights again how inflated the former is relative to the latter and how dependent we are on that inflation as we are hugely dependent on high end consumer spending.

As seen, it got to 614% at the tech stock market peak in Q1 2000. That was exceeded in Q4 2006 when housing prices were raging higher at 649%. Q1 2022 was the all time high at 835% after the 2021 run in both stocks and home prices and right before the rate hikes came. It now stands at 785%.

While this benefits those that own assets, it is a major financial hurdle for those that don't. Apartment List yesterday released its 2024 edition of their Millennial Homeownership Report. It said "Today 45% of all Millennials are homeowners, a new high. But Millennials continue to buy homes at a slower pace than previous generations. By the time they reach age 30, just 33% of Millennials are homeowners, compared to 42% of Gen Xers, 48% of Boomers, and 55% of Silents, when they were the same age."

And, "Data are also emerging for Gen Z, who face a severe shortage of affordable homes. Today just 8% of Gen Z adults are homeowners, and it's still much more common for them to be living with parents than to be owning homes."

This gets to my point that while there is a flood of new apartment supply this year, particularly in the sunbelt states, it will be well absorbed and set us up for a resumption higher in rents beginning in the latter part of 2025 and into 2026. https://www.apartmentlist.com/research/millennial-homeownership-2024

Net Worth as % of Disposable Income

While the BoJ is not expected to raise rates again next week, they will signal that more are coming and the yen continues to rally. On a closing basis it is now at the highest level vs the US dollar since July 2023. What happens there, matters here, pay attention.

Gold by the way, at another fresh record high. Silver has a lot of catch up to do and I believe it will, talking my book.

Yen

Now to the earnings calls.

From RH, and CEO Gary Friedman:

"demand was up 7% in the 2nd quarter and has continued to inflect positive, gaining momentum each month with July finishing up 10%. Demand accelerated into the 3rd quarter with August up 12% and product margins inflecting positive despite operating in the most challenging housing market in three decades."

He highlighted that they are taking market share. "We believe our demand performance demonstrates we are the best positioned brand in our industry to benefit from the anticipated rebound of the housing market once interest rates decline and home prices reset lower, closing the affordability gap that has suppressed the market for the past several years."

On the guidance, "Despite expectations for industry conditions to remain challenging until interest rates ease and the housing market begins to rebound, we expect our demand trends to accelerate throughout 2024 and into 2025."

We know they have a higher end customer.

Gary is always colorful. "By refusing to follow the herd into the anything-but-social world of social media, you won't find us on Instagram, or paying a bunch of strangers, called influencers by some, to say they love our brand on TikTok, one thing you can be sure of is that place you will likely find us, is on the road less traveled, one guided by our vision and values that will continue to ignite our spirit and inspire our customers."

And as we debate the extent of the rate cut next week, and what is to follow and so many are spiking the football on the inflation story without reflecting yet any sign of the sustainability of the inflation decline (as we need time for that), Gary reflected on the 1970's.

"go to the 1970s and look at what happened like it's inflation up, they took rates up, they thought they had it, they took them down, they thought they had it, then up and down, up and down, up and down, up and down, up and down, till the federal funds rate was like 21%...it'd probably be good to really zoom in and just have the patience to count it, and who says that can't happen again? I hope not...I'd rather have them not cut the rates. It's bad for our business. Do not cut the rates until you are absolutely have killed inflation. Leave no doubt. Because if it starts going up and down and so on and so forth, it hits anywhere like that period that, I mean, it's like the worst 10 yr economic period in American history, except for the Great Depression. And you just don't want that to happen. I'd rather hang on and we're going to inflect no matter what."

From Signet Jewelers:

"we continue to see momentum in same store sales, improving more than 5 points from the 1st quarter, led by strong fashion sales, to deliver results in the top half of our expectations." They also got a lift from bridal "and continued strength in services."

"we grew merchandise margin and average transaction value, or ATV."

Of interest, "Lab diamond fashion jewelry continues to grow, up more than 25% in the quarter to last year, and is a driver of ATV."

Also of note, "Engagements also improved in the 2nd quarter by approximately 400 bps on a same store sales basis. As predicted, the engagement recovery is happening. Google and Instagram searches for engagement rings are now up significantly in recent months. Couples achieving at least 26 of our proprietary engagement milestones, where they become highly likely to get engaged is now 900 bps higher than last year, and the highest number of couples ready to get engaged we've seen since we began tracking these milestones a few years ago." They are thus confident for the upcoming "engagement season over the holidays and the multi-year engagement recovery back to pre-pandemic levels."

The caveat, "customers are approaching engagement in a more cautious way in this macro environment, slowing the recovery. For example, customers are visiting our sites 15% more often than a year ago before making a purchase."

From Kroger on its consumer:

"Customers continue adjusting to the current economic environment. The reduction of excess savings built up during the pandemic, higher interest rates, and the effect of inflation are pressuring customers' ability to spend. This is especially true for our most budget conscious customers, as we've been seeing for a while now. But we're now seeing other customer segments beginning to make changes as well. Customers are purchasing lower price cuts of meat, buying less, and focusing on essentials. Budget conscious customers are buying more at the beginning of the month to stock up on essential items and groceries. And then as the month progresses, they are more cautious with their spending."

"In response, we are supporting our customers by keeping prices low through promotions, including loyalty discounts, personalized offers, and fuel rewards." They are also focusing on their own private label brands to offer lower prices relative to the national brands.

On the industrial side of the US economy, from the Morgan Stanley conference yesterday.

From Dow Chemical:

"In the near term, we're seeing muted demand across most of our market verticals. We continue to see resiliency in packaging, particularly in North America for both domestic demand and exports, which led to price increases in July. Infrastructure demand, which for us includes residential construction, remained soft across all regions, primarily due to historically high interest rates."

"Demand for consumer electronics and home and personal care applications is steady. However, tighter discretionary spending has led to consumers delaying non-essential spend in durables...And in mobility, we're beginning to see softer demand materialize across all regions following solid growth in the first half of the year, which was driven by pent-up demand."

Upside:

-OMIC +60% (Deerfield Management submitted a non-binding acquisition proposal at $10/shr)

-IMRX +47% (announces positive initial Phase 2a data including complete and partial responses with IMM-1-104 in combination with Chemotherapy in First-Line Pancreatic Cancer Patients)

-RH +20% (earnings, guidance)

-SYRS +14% (CFO Haas bought 100K shares at $1.61/shr this week)

-W +7.5% (strength in sympathy with RH)

-ORCL +6.2% (guidance)

-ETSY +6.1% (US Biden Administration to crack down on trade loophole utilized by Chinese retailers to send cheap packages into US)

-AUPH +4.7% (Board restructuring)

-PGR +4.1% (reports Aug metrics)

-VST +4.1% (Jefferies Initiates VST with Buy, price target: $99)

-FARM +3.2% (earnings)

-UPWK +3.0% (Activist investor Engine Capital takes 4% stake; pushing for new Board at Upwork, but stopped short of calling for CEO Hayden Brown’s ouster in the letter)

Downside:

-SLQT -21% (earnings, guidance)

-INMB -14% (announces $13.0M registered direct offering for purchase and sales of 2.3M common shares and warrants)

-SMWB -13% (announces secondary offering of 3.5M shares by shareholder at $7.85/shr)

-ADBE -8.2% (earnings, guidance)

-AVIR -6.5% (global Phase 3 SUNRISE-3 Trial Evaluating Bemnifosbuvir for Treatment of COVID-19 did not meet primary endpoint)

-PDD -5.7% (US Biden Administration to crack down on trade loophole utilized by Chinese retailers to send cheap packages into US)

-GOGO -4.7% (UAL reportedly selects Starlink for in-flight internet to cover entire 1,000 plane fleet)

-BA -4.3% (machinists in Pacific Northwest confirmed to go on strike following rejection of labor deal)

-MRNA -3.9% (multiple broker downgrades following R&D Day)

-GRMN -2.5% (Barclays Cuts GRMN to Underweight from Equal Weight, price target: $133)

Chart from 8:28 a.m. ET.

Chart from 8:04 a.m ET.

The Short-Term Oscillator has moved to 1.95% — modestly overbought.

In the Comments Section yesterday. Robbo has asked for a longer-term trend of the Oscillator overlayed with the S&P Index.

Here you go:

In the wee hours (4:10 a.m.) I shorted some more SPY ($560.32) and QQQ ($473.80) in the premarket.

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

From JPMorgan:

US: Futs are higher with Small Caps leading. In MegaCap Tech, GOOG, META, and NVDA are the top performers. Bond yields are lower and USD is weaker; 2-, 5-, 10-yr yields are 6bp, 5bp, 3bp lower. Commodities are higher. ADBE is down -8% after the guidance disappointment despite a strong FQ3 upside. ORCL jumped another +6% after its positive medium-term revenuve guidance. Today, the data focus will be on Michigan Sentiment and inflation expectation. The consensus is at 68.5 vs. 67.9 prior.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, SPX retested 5600 during the session and the index is expected to have the best WoW performance since August 16. Macro catalysts yesterday largely came in line with expectations (PPI prints 10bp above consensus on MoM, Claims in line). WSJ (Timiraos)’s article put 50bp cut back to the table: the probability of 25bp vs. 50bp is back to a coin-flip. We saw a number of single stock development yesterday: in consumer, KR beat consensus and increased full-year guidance; the stock was up +5.6%. The consumer read-through was largely in-line with what we heard from most retailers this quarter: lower-income consumers are affected by higher interest rates and savings reduction, but mainstream households are having increased visits.

* With stocks reversing higher this week (with gusto), the technical types are giddy, again. Just as they were prior to the recent correction...

Bonus — Here are some great links:

Liftoff!

State of the Market

Defense Takes the Field

Biotech's Big Comeback

Sentiment Gets Seasonal

Wolf Street howls about the U.S. housing market.