As of 4:26 p.m.:

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

Nasdaq Advance Decline Intraday

From Hedgeye's Keith:

Though Friday had a negative bias, today was narrowly range bound like Tuesday-Thursday of last week.

As of 3:15 p.m. it has been a quiet day of trading, an active day of research.

Today's (not too many) "things":

* Added to MSOS $7.08.

* With S&P cash +2 handles I sold some more in the money SPY/QQQ short calls.

* I added to OXY at $50.85.

From Peter Boockvar:

Powell gives us his base case and market responds

With Jay Powell at the NABE coffee talk saying that under his base case the Fed will cut two more times this year, 25 bps at each of the remaining two this year but cuts past this will play out over time and they aren’t looking to rush them from here as they are not on any pre-set course, the 2 yr yield is now above where it stood on September 17th, the day before the 50 bps cut, rising by 10 bps today. The 10 yr yield is back to 3.80%.

Bottom line, the market has priced in so many rate cuts with a 2025 year end fed funds rate at 2.85% as of Friday’s close (and today rising to 2.95%) and while it still might happen, his comments are not matching up with those expectations under his base case. Also note, while the dots are what they are, the median dot is at 3.40% by yr end 2025, also not, as of now, matching those market expectations.

2 yr yield since Sept 16th, two days before FOMC rate cut

Bret Jensen

CRE Data Point dept

Island Capital is buying a Doral, Fla., office building at a discount (understatement of the year), paying $11 million for the 11-story property after it last traded for more than $96 million seven years ago

With S&P cash up by about two handles I modestly added to my short Index calls.

* "Wishin' And Hopin'"

* "Wouldn't It Be Nice?"

* If Berkshire was the buyer of Occidental today...

Wishin' and hopin' and thinkin' and prayin'

Plannin' and dreamin' each night of his charms

That won't get you into his arms

So if you're lookin' to find love you can share

All you gotta do is hold him, and kiss him and love him

And show him that you care

- Dusty Springfield, Just Wishin' and Hopin'

Between 11 a.m. and 11:30 a.m. Occidental Petroleum OXY traded a large amount of volume (over 5 million shares), taking the shares from about $52 to $50.65. See below!

Wouldn't it be nice if the buyer was Berkshire Hathaway BRK.A BRK.B?

Wouldn't it be nice if we were older?

Then we wouldn't have to wait so long

And wouldn't it be nice to live together

In the kind of world where we belong?

You know it's gonna make it that much better

When we can say goodnight and stay together

- The Beach Boys, Wouldn't It Be Nice Wouldn't It Be Nice (Remastered 1999) (youtube.com)

Intraday comparison:

I am in a research call to about 2 p.m.

Radio silence.

From Peter Boockvar:

The last of the manufacturing PMI's ahead of tomorrow's ISM

Rounding out the regional manufacturing surveys ahead of tomorrow’s ISM manufacturing report was from the Dallas Fed and the Chicago MNI and both reflect continued contraction. The September Chicago PMI was little changed at 46.6 vs 46.1 in August. It was above 50 in just one month since August 2022. The Dallas manufacturing index for September was -9.0 vs -9.7 in the month before. The last time this index had a plus sign in front was April 2022. The 6 month business outlook at 11.4 was flattish with the August print of 11.6.

Expectations for tomorrow’s ISM is 47.6 and the regional Fed surveys point to that continued manufacturing weakness.

Here were some of the notable company/industry comments from the Dallas survey and politics was an influence for some:

Chemical manufacturing

· Increased imports [is an issue affecting our business].

· Regulation [is an issue affecting our business].

Computer and electronic product manufacturing

· We are seeing signals of the market inflecting up, but near-term, things remain muted.

· We look at the possibility of a [Kamala] Harris administration with great concern. It will almost certainly lead to a reduction in our general business activity. We sell into many industries, so while "green" industries will be favored, we expect others (e.g., oil and gas) to be politically disfavored, leading to reduced investment.

Fabricated metal product manufacturing

· Our system business has slowed, while our shop work is very strong. We usually see large system work hold or decline in an election year.

Food manufacturing

· Now that the Federal Reserve has started to lower interest rates, I feel better about the overall direction of the economy. After the presidential election, we will have a clearer perspective of what to expect in the next six to 18 months. Now, what will happen with oil and the Middle East?

· Interest rates coming down is having a positive impact on capital expenditure and interest payments.

Machinery manufacturing

· Business remains slow, which will hopefully change after the election.

· The reality of a Democrat victory is disconcerting for our customer base who have a legitimate fear of declining business conditions going forward. That jeopardizes our forecast and opportunities for success. It's been quite a while since our customers' sentiment has been this negative.

Nonmetallic mineral product manufacturing

· Improvements are only due to a new product line introduced. We have not seen any business or industry improvements.

Paper manufacturing

· We saw a slight uptick in activity from last month. This was before the interest rate movement.

Primary metal manufacturing

· We are using capital expenditures to add new product offerings to offset dwindling legacy product. Oil and gas product demand is shrinking.

· All of the major markets we sell into continue to trend downward. That includes transportation and building/construction.

Printing and related support activities

· September will be slower with less billing than August, which is a drag as it's the last month of this fiscal year. We have been feeling the slowness in estimating for a couple of months, and now we are seeing the results. We are optimistic that six months from now we will see better times, especially after the election.

Transportation equipment manufacturing

· The outlook is totally controlled by the November election.

· We are seeing constraint from large customers being practiced, [with them] only ordering what's needed immediately, not providing forecasts and not sharing insight. Major customers have been impacted by cyberattacks and ransomware incidents, shutting down operations in August and September.

· We are tied to the trucking/transportation industry. The market continues to soften, with fleets holding onto cash. All other suppliers to the market are seeing the same thing. Overall, the market is down 50 percent year over year.

• New York Stock Exchange volume is 15% above its one-month average

• Nasdaq volume is 21% above its one-month average

• VIX down 0.065 to 16.95

Energy gets jiggy.

From 10:25 a.m. ET.

The Vice President on cannabis: Kamala Harris Says 'We Need To Legalize' Marijuana For First Time As Democratic Presidential Nominee - Marijuana Moment

Short rates are moving higher, might hurt homebuilders (who experienced a strong Friday session).

Second level thinking:

Masterhedge

25 minutes ago

Second level thinking would be that the Israeli military have inflicted so much damage on the terrorists that it is going to make the region SAFER for LONGER. Add in volume increases and Oil maybe a true tell of REDUCED risk, not more.

From Peter Boockvar:

We'll of course see if it works but some stocks got ridiculously cheap/European autos

Whether the steps the Chinese government are taking (they announced another over the weekend, people will be able to refi their mortgage at the current lower rate) is successful in putting a floor in the deterioration in its housing market and the lift in stocks can hold we'll only have to see of course but I wanted to illustrate how ridiculously cheap some of the stocks there were prior to this and that was the coiled spring for an eventual rally. I'll focus on the Macau stocks again, that I've been positive on since the reopening there and it hasn't been fun being long until last week.

Let's take Wynn Macau (1128 HK and a stock I own). As of just a few weeks ago this stock was trading around where it sat for most of 2022 when the country was basically closed. In Q1 2022 Wynn Macau had revenues of about $300mm, helped by the Lunar New Year annual holiday. It was followed by Q2 2022 revenues of $117mm and a similar amount in Q3 2022. EBITDAR was negative in all 3 of these quarters.

In Q1 2023, just after the shutdowns ended, their two casinos in Macau, Wynn Palace and Wynn Macau, did a combined $600mm of revenue and $156mm of EBITDAR. Q2 2023 saw $770mm of revenue and $247mm of EBITDAR. Q3 reported revnues of $820mm and EBITDAR of $255mm.

In Q1 2024, did $1b of revenue and $337mm of EBITDAR, also helped by the holiday. In Q2, both did $885mm of revenue and $281mm of EBITDA. We'll see Q3 results in early November.

In 2019, the stock was trading at about 13x EBITDAR vs around 7x a few weeks ago. Yes, debt is higher but not by much helped by delevering over the past year.

Another, Melco Resorts & Entertainment (MLCO and a stock we/I own) was at $22 in February 2022 and hovered around $5 in most of 2022. In late August 2024, it was back to around $5. Yes, they have more debt, $7.2b as of Q2 2024 vs $4.7b in Q1 2020 but have been quickly delevering too and have since added a major European casino resort in Cyprus to their portfolio.

The company with the largest market share in Macau, Sands China (1928 HK and I own) with about 50% of the market, saw its stock at October 2022 levels just a few weeks ago. Its parent company Las Vegas Sands (we/I own) owns 71% of the company and has recently been buying more shares. Yes, also more debt has been taken on but quickly being paid down and undergoing major renovations on a big property, The Londoner, that has taken more than 1,000 rooms off the market temporarily but will be back online soon.

I will also say this, if China's economy gets a lift from all of the policy moves, it will greatly complicate the jobs of the Fed and its central bank peers. Iron ore is up for a 5th straight day, by 6.2% today to the highest since early July. Nickel, lead, and tin are all up too. Copper though is slipping but after last week's jump. Oil is still trying to digest what the Saudi's might or might not do.

There is also this belief that stimulus in China and a rally in its stocks is also good for the US and its markets. Maybe, but we barely sell stuff to them (only about $150b worth vs the $550b they sell to us). And did weak Chinese stocks hurt US stocks? Only those who specifically did notable business there like Nike, Starbucks, Estee Lauder (we/I own) and somewhat Apple. And if global bond yields go higher if China reflates again, that of course would not be good. What's good for China might mostly be just good for them and its main trading partners in the rest of Asia and parts of Europe. Along with other emerging economies that are not trying to keep their goods out via tariffs.

Wynn Macau (1128 HK)

Melco (MLCO)

Sands China

The Shanghai comp followed last week's gains with an 8.1% spike overnight while the Shenzhen comp was up by 11%. The Hang Seng rallied by 2.4%, with a 24% ytd gain. The H share index in Hong Kong gained 2.9% and is now up 30% ytd. This comes ahead of Golden Week where markets will be closed.

Obviously not yet reflecting what was announced by the Chinese last week, the manufacturing and non-manufacturing composite PMI rose to 50.4 from 50.1 in September with the former at 49.8 from 49.1 and the latter down a touch to exactly 50 from 50.3.

The private sector focused Caixin PMI saw manufacturing dip to 49.3 from 50.4 and services fall by 50.3 from 51.6. On manufacturing, Caixin said "The market was characterized by diminished demand coupled with fierce competition...Overseas demand contracted too." With services, "Supply and demand continued to grow, but at a muted clip, amid average market performance."

After the slower French and Spanish CPI figures seen last week, Italy reported a deceleration too and at 8am we'll likely see Germany say the same.

Europe's problem today though is its auto industry where Volkswagen, Stellantis and Aston Martin all lowered earnings guidance (VW did on Friday). This follows Mercedes and BMW.

Volkswagen said Friday, "In light of a challenging market environment and developments that have fallen short of original expectations..." they are updating us with lower profit guidance.

Stellantis said today that they revised its 2024 financial guidance "reflecting decisions to significantly enlarge remediation actions on North American performance issues, as well as deterioration in global industry dynamics...Deterioration in the global industry backdrop reflects a lower 2024 market forecast than at the beginning of the period, while competitive dynamics have intensified due to both rising industry supply, as well as increased Chinese competition."

Charts from 8:24 a.m.:

Chart from 8:23 a.m.:

Upside:

-AEYE +3% raises outlook

-TTEC +27% buyout

-SATS +3.4% DIRECTV confirms to acquire EchoStar's Video Distribution

-DIS +1% upgrade

-RPD +2% Jana stake

-THAR +10% merging with Intract Pharma

-PDSB +10% earnings

Downside:

-STLA -13% cuts outlook

-GM -3.7% sympathy

-F -3% sympathy

-NVDA -3% Bytedance to use Huawei chips

This morning Stellantis STLA, Aston Martin AMGDF and VW VWAPY post earnings warnings.

After being down big last week, General Motors GM (our most recent short) is lower by -- $2.12 (-5%) in premarket.

From last week:

As Goes GM, So Goes the S&P?

“As goes GM, so goes the Nation.”

- Charles Wilson (CEO of General Motors in 1953 congressional hearings)

Our newest short (GM) , is -$2.72 on the opening (-6%).

Position: Short GM S

By Doug KassSep 25, 2024 9:44 AM EDT

From JPMorgan:

   US: Futs lower, but off their overnight lows, as we close the quarter. Both NDX and RTY are underperforming pre-mkt with Mag7 names lower ex-AAPL and TSLA, and semis weaker with NVDA -1.8%. Bond yields are 2-4bps higher as the curve beat flattens; USD is weaker though. Cmdtys are mixed with base metals the standout, moving higher on the China trade. This heavy data week kicks off with regional indicators and 2x Fedspeakers. Overall, economic strength with a Fed tailwind pushed markets to shrug off both negative seasonality and JPY carry unwind. Given the China growth reboot, can positive US data push this trend into Oct/Nov, or do we see Election uncertainty/vol spike create another downdraft before rallying into year-end? This week’s data may help answer those questions, but the medium-term trend appears to be higher.

and...

EQUITY AND MACRO NARRATIVE: Last week, SPX added 62bps with NDX +1.1% and RTY losing 14bps. Cyclical sectors, including Materials, Discretionary, and Industrials outperformed while HC, Energy, and Financials all lost value. WTI fell $2.82 (-4%) on chatter that Saudi Arabia will production back online, ahead of OPEC+ schedule. This occurred with macro data (Flash PMI-Srvcs, GDP, Durable/Cap Goods, Personal Income/Spending, and Univ of Michigan) pointing to an economy that remains above-trend growth levels. The biggest surprise was the series of stimulus measures unveiled by China, giving a boost to global Equities. The 10Y yield increased by less than a basis point as the yield curve steepened; IG credit spreads (JULIS) tightened by 1.1bps and now sit 5.4bps from YTD tights. In HY, spreads widened by 1bps as yields increase 7bps.

Feroli’s team increased their 24Q3 GDP estimate from 2.5% to 2.75%. They see consumption tracking a 3.2% pace QoQ, slightly below their estimate of 3.5% (full note is here). The Cleveland Fed’s Inflation Nowcaster points to 24Q3 Headline CPI printing 1.14%, Core CPI at 2.18%, Headline PCE at 1.33%, and Core PCE at 1.99%.

As we end the quarter, SPX sits on a 1.6% gain surprising to the upside for a month that many, including us, expected to be lower based upon negative seasonality. Prior to 2024, Sept had been positive 11x and negative 13x this century. SPW outperformed, +2% with NDX +2.2%, Mag7 +4.8% and RTY +0.3%. Where from here? This week is important to frame the macro narrative as next week kicks off earnings season with the Election still looming but not yet creating a headwind for stocks. Data this week includes ISM and NFP where the latter will help the market formulate expectations for the November Fed meeting; plus, there are 9x Fedspeakers. The balance of this note contains (i) our NFP Scenario Analysis; (ii) 24Q3 earnings preview; (iii) an update from Positioning Intel; (iv) and update on China and how to play it; and (v) Econ/FICC bullets from JPM Research; plus, the usual assortment of levels, calendars, and news links.

NFP SCENARIO ANALYSIS

Feroli’s full NFP preview is here. He sees 125k jobs being added, which is below the Street’s estimate of 146k. For the unemployment rate (U.3) he sees 4.3%, above the Street’s estimate of 4.2%.

The following scenario analysis is NOT A PRODUCT OF JPM RESEARCH, this is a trading desk view from JPM US Market Intelligence.

• [5%] Above 200k. This first tail-risk scenario would point to an economic reboot from a soft patch this summer. While ‘soft patch’ is not an appropriate description for an economy that is on-track to deliver real GDP growth north of 2.5%, we did see job growth slow; but, that now looks to be a temporary slowing. This type of print trigger a material re-pricing of bond yields higher and that spike in bond vol would likely spill over to Equity markets. While this is likely to produce a muted response on a 1-day basis, it would be a positive over time since higher NFP points to an even higher GDP growth trajectory which is also positive for earnings. This would, however, result in uncertainty over Fed policy; this type of print could see some investors thinking the Fed skips a cut in November. SPX is flat to adds 50bps.

• [30%] Between 160k – 200k. This is our Goldilocks scenario since it would point to higher growth without an inflationary impulse. While bond yields would move higher, this type of outcome is aligned with a medium-term view that the combination of Fed easing, and lower energy prices will produce a tailwind to the economy that is likely to keep GDP growth above trend. This outcome would push the market to 25bps for November with even more uncertainty around 2025. SPX adds 1% - 1.5%.

• [40%] Between 140k – 160k. This is the consensus print and still falls in the Goldilocks zone, where the economy continues to grow at a pace that supports earnings expectations without an inflation reboot. That said, this type of print is not enough to remove all concerns over recession eventually materializing. SPX adds 75bps – 1.25%.

• [20%] Between 110k – 140k. A lower MoM print (previous NFP was 142k) would be a return to growth concerns and the potential resurfacing of the ‘Fed is behind the curve’ narrative. Look for bond yields to move lower and for Defensives to outperform in Equity space. SPX falls 50bps – 1.5%.

• [5%] Below 110k. The second tail-risk scenario would be problematic for bulls since this could put the economic outlook towards one of a recession beginning in 24Q4. Typically, we see NFP print negatively just before a recession begins, so the closer to zero the worse the outcome. Here we would likely see an unwind of bullish Cyclicals/Value trades and for Credit to outperform Equities on the move lower. SPX loses 1.25% - 2%.

• WHAT ARE OPTIONS PRICING? For options that expire Friday, Oct 4, we are seeing ~1.5% move, based upon prices from Sep 27.

• US MKT INTEL VIEW – Tactically Bullish. We adhere to the formula of at/above trend GDP growth plus positive earnings growth and a supportive Fed continuing to drive the bull market. As mentioned in the bullets above, the economic environment is forming a tailwind to the consumer and corporate sectors, which we feel will continue this recent trend of elevated GDP growth. This is especially true if the Fed maintains its aggressive cut cycle as predicted by Mike Feroli; this will aid the Housing sector and eventually lead to a reboot of the Manufacturing sector. Also, we are of the view that the consumer remains on solid footing with the ability to continue to drive the economy as other segments of the economy are having a more muted impact.

• MONETIZATION MENU – We favor the barbell with a heavier tilt to the Value/Cyclical side. TMT side of the barbell = Mag7, Data Centers, and Semis. Value/Cyclical side of the barbell = Banks, Homebuilders, Autos, Retailers, Transports ex-Airlines, and RTY. We like using factor hedges of both Beta and Momentum. From a pairs trade perspective, we prefer precious over base metals. In derivatives, we like Energy Equity upside and would look for index put spreads to protect from a market pullback in October, though we do not expect any pullback to retest the lows of September (~5,400 in SPX).

• WHAT TRIGGER A CHANGE TO THE BULLISH VIEW?

o A negative NFP print – this could shift the narrative to one of recession or stagflation, negative for stocks;

o 2-3 consecutive negative Retail Sales prints – this would have a similar impact as a negative NFP print, but potentially less acute;

o A decline in consumption likely triggered by a rise in unemployment;

o A QoQ or YoY decline in SPX revenue or earnings especially if led by MegaCap Tech;

o An inflation spike that pushes yields materially higher with high velocity, e.g., 10Y above 5%;

o A deterioration of consumer and corporate balance sheets – in the case of consumers would use proxies such as debt service payments as a percentage of income as well as credit card delinquency data.

o Geopolitics are important to consider but tend to not have a lasting impact on US Equities and thus are events to hedge rather than to change one’s investment hypothesis.

Overnight, the Short Range S&P Oscillator dropped from 5.31% to 4.60% — but it still remains well overbought.

And then there is the low put/call ratio:

From Danielle DiMartino Booth:

The Daily Feather – Consumers Not Holding Out for A Hero

* Energy is one of the few areas that I see favorable reward vs. risk...

While I was out of the office on Friday, energy stocks were standouts in a sea of red: CVX (+$4), XOM (+$3), OXY (+$1.15), SLB (+$1.15).

I added small to my energy exposure in the morning.

From earlier last week:

Oil Vey (Part Deux)

Back long small (CVX) at $143.71 and (XOM) at $114.25.

I have a scale to buy lower. 

By Doug Kass Sep 25, 2024 2:10 PM EDT

* There are a lot of very interesting charts this morning (on differing asset classes)...

Bonus — Here are some links:

Stock Market and Bitcoin Trends 

Asia Has Arrived

China Ripping? Buy Copper

More Upside Gain in China... Than Downside Risk

Higher Interest Rates?

Federal Marijuana And Drug Convictions Would Be Automatically Sealed Under New Bipartisan Senate Bill - Marijuana Moment

From Bramo: