As of 4:21 p.m.

Closing Breadth

S&P 500 Sector ETFs

Nasdaq 100 Heat Map

From Peter Boockvar:

Home sales, give it a few more months to respond to lower rates

Pending home sales in August rose .6% m/o/m, about in line with the estimate of up 1%. Versus last year, contract signings of existing home sales are lower by 4.3%. As said yesterday, the average 30 yr mortgage rate in August was 6.5% vs 6.88% in July and vs around 6.20% today.

Bottom line, while it hasn’t yet really shown up in the data with regards to consumers jumping off the fence to buy a home with the drop in mortgage rates, let’s give it thru October as after that the holidays will stall things. If we don’t see much movement in the pace of transactions, then it would be a sign that the affordability challenges can’t be all solved by a 100-150 bps drop in mortgage rates after almost tripling since 2021, especially when the median home prices is up about 50% over the past 4 years.

Either way, any lift in sales would of course be welcome as we currently sit at around 30 yr lows in the number of transactions. The real conundrum though for the housing market is if long rates don’t drop, and even rise which I think will be the case, as the Fed is cutting short rates. Then, both commercial and residential real estate will see no relief from the Fed’s pivot.

Pending Home Sales Index

Avg 30 yr Mortgage Rate

The Short Term S&P Oscillator is way overbought, the put/call ratio is low, investor surveys are growing more optimistic and the perma-bull panelists on FIN TV are now universally bullish. They've rarely been so confident and are patting each other on their backs.

With all the headwinds and uncertain outcomes I have described in several openers this week you all know how I stand — particularly with multiples (off of phony S&P estimates) in the 95% tile.

I prefer to express my exposure based on my perception of upside reward vs. downside risk and not by an emotional response to a the endless rise in equities.

I am slowly expanding my short exposure — but taking baby steps in respect of the price momentum — as I view a "breathless" business media bowing to records in the Indices.

skeptcl

Zachritz this am:

Crude oil closed down $1.87 yesterday at $69.69, despite a better than expected weekly report out of EIA. The drop appears to have been tied to Gaza and Lebanon peace talks and the ongoing lack of direct action by Iran and on ongoing concerns over China's economy. This morning crude is trading down $1 to $2 on a Financial Times story.

Finantial Times Watch: This morning's FT story claims sources with knowledge of Saudi plans to abandon it's $100 oil target and reclaim market share. There is no $100 target. The sources are unnamed. There is no new data in the story. 

Back long OIH at $275.08.

As of 11 a.m.:

Volume

- NYSE volume 38% above its one-month average;

- NASDAQ volume 18% above its one-month average

- VIX up 0.91% to 15.55

Breadth

S&P 500 Sector ETFs

Nasdaq 100 Heat Map

* SPY $571.25 at and QQQ at $486.90

From this morning:

* Shorted more (SPY) at $575.40 and (QQQ) at $492.64.

From JPMorgan on DraftKings DKNG:

Raising price target from $48 to $54. JPM analyst raised the firm's price target on DraftKings and keeps an Overweight rating on the shares.

The firm reaffirmed its positive view on DraftKings and up its year-end 2025 price target. It came away from Flutter's capital markets day "incrementally encouraged" in the underlying momentum in the North American online sports betting and internet gaming industry. Flutter's increased total addressable market outlook and upbeat scale commentary is positive for DraftKings and suggests the sector "is really a two-horse race."

* Purchased more SLB at $40.88, CVX at $141.01 and XOM at $111.95. All three were initiated very small buys yesterday and I have moved to medium-sized long.

* Shorted more TOL at $151.58.

* Bought more MSOS at $7.05, VRNOF at $3.36 and CURLF at $3.01.

* Shorted more SPY at $575.40 and QQQ at $492.64.

From Peter Boockvar:

At least someone agrees with me now/Claims, durable goods orders

At least David Tepper agrees with me on Chinese/Hong Kong stocks as I can’t find many others. His timing though was much better than mine.

Initial jobless claims totaled 218k, 5k below expectations partly offset by a 3k upward revision to last week’s print to 222k. The 4 week average was 225k vs 228k in the week before. Continuing claims were 1.834mm vs 1.821mm in the week before, still around the highest levels since November 2021.

At least measured here, the bottom line remains the same in that employers have cut back on their pace of hiring while still being reluctant to fire their people.

Core durable goods orders in August were as expected when including the prior month’s revision. They continue to flat line though as much of the spend on anything AI has taken spend from elsewhere rather than grow the aggregate capital investment pie. To quantify, core durable goods orders are down 1.4% y/o/y.

Core Durable Goods Orders in dollars

David Tepper on CNBC:

From Peter Boockvar:

China again a big story/Sentiment/SNB cuts/Earnings comments, rising auto loan losses

For the 3rd day there is more moves by the Chinese authorities meant to put floor under its housing and financial markets and now they are using fiscal spending to help lower income people too (this fiscal news came out during our trading day yesterday). Firstly, Bloomberg News citing "people familiar with the matter" said "China is considering injecting up to 1 trillion yuan ($142b) of capital into its biggest state banks to increase their capacity to support the struggling economy." As to where the money would come from, "The funding will mainly come from the issuance of new special sovereign bonds."

Secondly, on the fiscal side according to a statement from a Politburo monthly meeting, they will employ "necessary fiscal spending" in order to get to their targeted growth rate of about 5%. Part of this will be one time cash handouts.

Thirdly, and where the biggest stress in their economy lies, residential real estate, this statement said the government should "promote the stabilization of the real estate market" and will focus on finishing unfinished projects and "improve land, fiscal, tax, and financial policies as soon as possible to push forward the new model of property development." They will also limit the building of new apartment projects in order to contain supply.

The Shanghai comp rallied by another 3.6% and is finally in the green year to date. The Hang Seng was up by 4.2% and higher by 17% year to date and the H share index in Hong Kong bounced another 4.8%, extending its year to date gain to 23% year to date. The yuan is rallying too as are commodities. Copper is up by 2%, to the highest since mid July. Iron ore is up for a 3rd day, by 3%.

Oil though is down on the FT story that "Saudi Arabia is preparing to abandon its unofficial oil price target of $100 a barrel as it prepares to increase output to win back market share, even if it means lower prices", and where the FT is "citing people familiar with the matter."

When analyzing the global economy and markets, put aside any distaste for the authoritarian government in China, the human rights suppression of some and the buzz kill of the historically vibrant entrepreneurial culture and remember that it is still the 2nd biggest economy and thus remains a major economic presence. The demographic challenges with a shrinking working age policy is something too we all know but I expect a rise in per capita income will mitigate this and the Chinese consumer will also remain a major economic driver, particularly as their middle class continues to increase in size, likely doubling in the coming decade. With respect to manufacturing, they are fast moving up the value add ladder, as seen by the most advanced EV industry in the world.

And, if China is successful in at least stabilizing their economy, the whole disinflation spiking of the football by some central bankers will have to be rethought. I'll argue again, I believe we're in an era of inflation volatility and we're not magically going back to 2% per annum gains and staying there sustainably as opposed to temporarily.

Stock market sentiment, along with price, is getting more bulled up again, and following the Fed's rate cut. Investors Intelligence said Bulls rose back above 50 at 52.5 from 49.2 while Bears were unchanged at 22.9 with those expecting a Correction down to 24.6. AAII saw Bulls down by 1.2 pts w/o/w to 49.6 but it jumped by 11 pts last week. Bears shrunk by 2.7 pts to 23.7, matching the least since mid July. The CNN Fear/Greed index was 67 yesterday, in the middle of the 'Greed' category vs 65 one week ago and 43 one month ago. Bottom line, while the Bulls are coming back and bears are hibernating again, and something we should take note of, there is nothing uber extreme here.

The Swiss National Bank cut its overnight rate by 25 bps as expected to just 1% but there were some that thought 50 bps was on the table. That is not a floor though, coming from the central bank that experimented with the deepest level of negative rate policy. Governor Jordan said "With today's easing of monetary policy, we are taking the reduction in inflationary pressure into account. Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term."

With inflation running around 1% in Switzerland, the SNB has reason to have low rates but here were are back to zero REAL rates for them. Some central bankers just can't help themselves when it's time to ease.

Germany's consumer confidence index was little changed at a still deeply negative level of -21.2 vs -21.9 in the month before. They said "After the severe setback in the previous month, the slight improvement in consumer climate can be interpreted more as a stabilization at a low level." Nothing market moving here.

Moving to some earnings stories.

From the used car dealer CarMax:

They grew comp store used unit sales by 4.3% while its wholesale business fell by .3% y/o/y.

This was the most noteworthy when commenting on their CarMax Auto Finance business:

Their income fell 14.4% "driven by an increase in the provision for loan losses that outweighed growth in CAF's average managed receivables and stable net interest margin percentage...We believe the increase is largely related to the industry wide worsening in loss experience." The allowance loan loss as a percent of managed receivables did tick up sequentially to 2.82% from 2.79% but down from 3.08% last year "due to the effect of the previously disclosed tightening of CAF's underwriting standards."

They did refer to "industry wide auto loan loss pressure."

HB Fuller is an industrial company making paints, coatings, sealants and other specialty chemical products. They said "we continue to navigate a dynamic macroeconomic environment across our portfolio. Our volume growth during the quarter was impacted by slowing market demand in certain durable goods markets in EA, and we are adjusting our full year outlook accordingly." I'm actually not sure what EA stands for. Emerging Asia? Emerging areas?

From Micron, all you need to hear, outside of the numbers, "For 2025, definitely that momentum in AI continues." The growth in other parts of their semi business was more modest, particularly PC and smartphone.

As of 8:09 a.m. and their mini-graphs as of this morning:

At 8:26 a.m.:

I will be leaving today at about noon and returning Monday morning as I have some personal tasks to address.

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

From JPMorgan:

US: Futs are higher as the China stimulus story has produced another positive day for global Equities; bonds and cmdtys are not with the same magnitude. Pre-mkt, both NDX and RTY are outperforming as Mag7 and Semis are rallying. MU +15.9% after releasing earnings, should be positive for the AI story. Bond yields are flat to down 2bps, and USD is flat. Cmdtys are mixed with Energy falling over uncertainty surrounding OPEC+ and a potential Saudi break from its production targets. The macro focus will be the 9x Fedspeakers, Q2 GDP/Price Index, Durable/Caps Goods, and KC Fed.

and...

EQUITY AND MACRO NARRATIVE: China continues to dominate the headlines with their stimulus measures. How long can this last? My colleague Matt See, says yes.

In the near-term, the tactical rally can continue as (1) The magnitude of the current rally is just half of what we’ve seen in “trading risk-on” episodes in China in recent years, and (2) The flurry of positive news likely continues over the next month as more easing policy announcements are drip-fed into the market, including for housing and fiscal. I also don’t think we are done yet on the monetary front – China can and should continue to cut rates from here to create a disincentive to save, which will be impactful if carried out in conjunction with fiscal/housing policies.

PUTTING THIS RALLY IN PERSPECTIVE? In recent years we’ve seen 2x risk-on rallies in China, the first around the Covid pivot and the second around national team stabilization efforts. Referencing these past events, one can make the case for the HSCEI to rally another 20% from current levels over the next 2-3 months as part of a “tactical” bounce (i.e., without having to turn structurally bullish on China).

From Danielle DiMartino Booth:

The Daily Feather — The Knights of CFOs’ Most Pressing Concerns

Forever associated with King Arthur and his Knights, the mere mention of the word “castle” conjures English moats, drawbridges, dragons, and, of course, damsels in distress. But did you know? Castles are more plentiful in Germany than the British Isles, according to the World Population Review. Among Europe’s most visited landmarks is Neuschwanstein Castle in Schwangau, Germany. In 1868, King Ludwig II of Bavaria commissioned this fairy-tale-like castle to be his personal retreat. Designed as an homage to Richard Wagner’s operas, it was fitting that Ludwig invited the composer to live in the castle after he’d gone broke (What is it with genius composers and destitution?) Gochsheim Castle is further down the list. An old royal residence in the Kraichtal area of Baden-Württemberg, it houses a museum and holds around 100 works of local artist Karl Hubbuch. Its most unique feature, though, can be found on its upper floor. There, if it’s your scene, you will find the world’s largest collection of irons, around 1,300 of them, to be exact, that were collected by Heinrich Sommer. To say then that Gochsheim Castle is a going “pressing” concern does indeed suit.

Chief Financial Officers’ (CFO) most pressing concerns were our first stop yesterday upon the release of the third-quarter CFO Survey. Jerome Powell & His Knights and The Merry Adventures of Monetary Policymaking topped the list followed by Demand/Sales/Revenue, Labor Quality/Availability, Health of the Economy, and Cost Pressure/Inflation. This order is based on total responses.

Filtering challenges by their deltas quarter-over-quarter sequentially yields a different scoring. At an increase of 5.2 points from this year’s second to third quarters, the Economy posted the largest increase (see large table); at 4.5 points, the Election came in second. Up 1.6 points, Revenue worries ranked third, followed by Access to Credit/Funding, which rose by 1.0 point, and the Financial Health of Customers, which was unchanged. Notably, the Federal Reserve (-1.0 point), Labor Quality (-2.4 points) and Inflation (-4.0 points), all in the survey authors’ Top 5, fell to the bottom five using our ‘flow,’ rather than their ‘stock’ parameters.

CFOs are increasingly nervous about recession and how it would impair their companies’ top-line growth. Election uncertainty could also impede growth. In a special question, the survey revealed “that 30% of respondents reported having ‘postponed,’ ‘scaled down,’ ‘delayed indefinitely,’ or ‘permanently canceled’ their investment plans because of the election, a bump up from the 28% voicing the same concern last quarter. Additionally, a larger share of firms took more than one action with respect to curtailing investment.” The interpretation: The obstacles to growing their businesses via investment have multiplied in the three-month interval between the second and third quarter surveys.

From a purely practical standpoint, the aggregate of these concerns should create an air pocket for business investment that manifests as weaker gross domestic product (GDP) growth into yearend at a minimum. The unequivocal message CFOs are conveying should prompt the macro community to mark down its third- and fourth-quarter GDP forecasts. And while the post-election period generally is a time the clouds clear and enable executives to see through to the business operating environment the next four years will bring, each candidate’s disparate stances on tax policy will prolong uncertainty into 2025’s first half. Separately, but of equal import, the degree of gridlock will also factor into the mindsets of players of all sizes throughout Corporate America.

As for what clarity CFOs can offer, their expectations for real revenue, a growth proxy, came in at 1.4% in the third quarter, close to the second quarter’s 1.3%, but below the first quarter’s 1.7% (purple bars). All three are “below trend” using the Congressional Budget Office’s (CBO) 2.0% potential GDP estimate (dashed red line). This year, CFO real revenue growth has nicely tracked GDP (green bars) and gross domestic income (GDI, orange bars). The takeaway is that today’s GDP report could be weighed down by more than the lower personal income ascribed to the 818,000 negative benchmark revision to nonfarm payrolls in the year ended March 31, 2024.

Curiously, CFOs reported contracting real revenues in 2023’s final three quarters, a period which saw refutations via reported expansions in GDI and GDP (red circled area). Because today’s revisions stretch five years back, to 2019, it’s likely that a good bit of post-pandemic economic history is rewritten.

Looking ahead, CFOs remain stubbornly cost conscious. Leveling the playing field between optimism about the economy (lilac line) and their own companies (aqua line), the latter has been painted more rosily in the post-reopening period. A better firm-specific outlook vis-à-vis the broader economy speaks to the control over costs that can be exerted to support earnings (light blue line).

The Survey breaks out CFOs’ growth outlook five ways: Revenue, Price, Wage Bill, Unit Cost and Employment. The average 2024 revenue expectation was 4.9%; it jumped to 7.1% for 2025 (see small table). Higher anticipated Price growth -- to 4.0% from 3.5% -- underpins expectations as Wages or Unit Costs were little changed. Defying the rosy forecast, however, are plans to slow Employment growth to 3.2% from 5.6%. In the dismal science, growing revenues amidst shrinking headcount growth means managers will squeeze more productivity out of each of their employees. While the survey data are averages, in the aggregate, they transmit the message that labor remains in the crosshairs, a pressing concern for any worker collecting a paycheck.

Bonus — Here are some great links:

Octoerphobia Intensifies

The Stock Market's Next Phase

Best and Worst Performance After Outperformance

Bull Market Behavior Abounds

The Short Range S&P Oscillator dropped to 6.05% from 7.36%.