As of 4:31 p.m.:

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

I remain short  (TSLA)  into the EPS report tonite.

I'm shorting more  (SBUX)  at $97.33.

At 3:05 p.m. the S&P Index is -65 handles — and that is up from the lows!

I spent most of the day adding to my short exposure.

Over the last two days I featured the deteriorating breadth — and called upon that statistic in justifying an expansion of my short profile.

Here is today's (bad) breadth: 

I did little today as I like my positioning.

Today's "things":

* I added to my  (NVDA)  short.

* I added to  (BAC)  short at $42.37 and  (JPM)  at $223.72 shorts this morning.

I have made no covers today.

MRKT Call from Liz, Guy and Dan on the markets.

Run, don't walk to watch here. MRKT Call - Wednesday, October 23rd - YouTube

And... it's free!

I have mentioned Ming-Chi Kuo before. 

Today he writes:

" iPhone 16 orders cut by around 10 million units for 4Q24–1H25; no evidence yet that Apple Intelligence could boost iPhone shipments in the near term."

I added to  (BAC)  at $42.37 and  (JPM)  at $223.72 shorts this morning.

I am adding to my Nvidia  (NVDA)  short.

Back in the saddle at my office.

Getting my sea legs back.

From Jefferies on Starbucks:

SBUX | $96.82 | PT: $76.00 | % to PT: -22%

F4Q SSS/EPS Miss, F25 Guide Suspended; Risks Remain Ahead

Preannounced F4Q results worse than expected with SSS -6% in the US and -14% in China vs Cons -3%/-12% respectively, and EPS $0.80 below Cons $1.03. While we surmise investor expectations for F4Q were already moot, suspended F25 guide doesn't add any near-term clarity to a tough road ahead in reaccelerating SSS/traffic worldwide, among other headwinds. We lower our F25/26 EPS ests to new Street-lows, reiterate Underperform and $76 PT.

Preannounced F4Q SSS -6% in the US and -14% in China, each below Cons. Preannounced F4Q SSS in the US was -6%, below Cons -3.2% and our -4% est, including avg check up +4% while traffic was down -10% vs F3Q24 down -6% (thus the -280bp Q/Q sequential decline in Placer.ai foot traffic data we highlighted in our Oct 15 note was a solid indicator but still understated the latest traffic declines). As has been well understood by the co and investors already, in our view, these underwhelming results were attributed in part to the large uptick in new product offerings/LTOs not resonating well with customers and creating too much in-store complexity. Furthermore, China SSS -14% (traffic -6%, check -8%) was also lower than the Street est of -12% as lower-priced competition and a soft macro continue to weigh on near-term demand for SBUX. CEO Niccol reaffirmed his immediate focus on the US business while also committing to returning the China business to growth; we remain skeptical on any significant improvements on the fundamentals there until the competitive/macro pressures ease. For F25E, we lower our US SSS from -0.8% to -3.0%, China SSS from -3.0% to -4.0%, and Int'l SSS from -0.4% to -1.0%.

EPS $0.80 missed Cons, F25 guide suspended, Street still too optimistic in our view. F4Q sales $9.07b below Cons $9.35, and EPS $0.80 came in well below us and Cons estimate of $1.03, driven by the greater SSS/traffic decline. F25 guide now suspended, unsurprising given a new CEO & strategic reset in the early stages. With our lower SSS outlook we also trim our Americas & Int'l op margin ests, taking our F25/26 consolidated operating margin ests to 14.0%/14.5% (fr 15.6%/15.7%), as we maintain some conservatism given likely investments into the biz/tech, partly offset by supply chain savings. Our F25/26 EPS ests go lower to $3.15 (fr $3.65) and $3.60 (fr $4.05), each new Street lows. We think Street estimates could come down closer to our new estimates after the Co issues its full F4Q results next week on Wednesday, Oct 30.

Our view on the stock: While we've expected weaker F4Q results to be overlooked by investors, we think negative catalysts remain near-term (beyond F25 guide suspension), including addressing the LT growth algo, that adds risk to contraction in SBUX's premium multiple to be closer inline with global QSR peers. Thus, we view gains in the stock price following CEO Niccol's hire as overdone given the tough road ahead and reiterate our Underperform rating and $76 PT, 21x our F26 PE.

From Peter Boockvar:

At least PTJ agrees with me

At least Paul Tudor Jones agrees with me on long end Treasuries being a sale and that precious metals, along with commodities generally are very attractive. We remain long stocks including big oil, natural gas, natural gas pipelines, an offshore driller, uranium, gold, silver, copper and fertilizer stocks. Also, TIPS on the Treasury side.

A lot of earnings calls to go thru so let’s get at it. A mixed picture remains evident regardless of the 3% GDP estimates out there for Q3.

From Genuine Parts, the distributor of auto and industrial replacement parts and whose stock fell 21% yesterday:

“continued softness in market conditions across our global geographies negatively impacted our sales growth in the quarter relative to our expectations, with the most pronounced impacts in Europe and our global industrial business. The weaker demand environment continues to be impacted by interest rates, combined with persistent cost inflation and election and geopolitical uncertainty. These factors are impacting our customers, most notably with tightened budgets and reduced spending for capital projects in our industrial business and reduced spending in general maintenance and discretionary categories across our automotive segment.”

What this meant for earnings? “The weak sales environment along with cost pressure in wages and rent expense plus anticipated headwinds from depreciation and interest expense resulted in adjusted earnings being down y/o/y” by 24%.

What are they hearing from customers? “We continue to hear from customers considering capital projects that they are pausing, not canceling these plans until they have better visibility into the interest rate environment and the outcome of the election in the US.”

From Sherwin Williams:

Here was the lay of their business land, “In our pro architectural business, demand remains variable by end market, with no impact to date from recent interest rate cuts. North American DIY demand remains weak driven by inflation and higher consumer debt levels. In our industrial businesses, demand remains choppy by end market and region.”

“We are maintaining our previous full year earnings guidance, recognizing the current range is wider than typical entering a fourth quarter.”

From MMM whose sales rose 1%:

“These results reflect end-market trends that were largely in line with expectations, including mixed industrial markets, strong growth in electronics, a decline in automotive OEM build rates and continued softness in consumer retail discretionary spending.”

From Nucor:

“While the broader US economy continues to be resilient, decreased steel demand from several of our end use markets along with higher import volumes has put pressure on our margins throughout the year. The Federal Reserve’s recent actions are a good start, but it will likely take more time, more rate relief and looser lending conditions before we start to see the flow through effect in the construction, industrial and consumer durables market that are so impactful to steel demand.”

That said, “several markets do remain quite healthy. For example, construction related to semiconductor factories, advanced manufacturing facilities, data centers and institutional buildings are still very strong.”

This gets to my continued point that the best parts of the US economy are related to government spending/IRA/Chips Act and anything related to AI, along with upper income consumer spending. Not much contribution elsewhere.

From GM:

They took market share and this helped their margins, “We’ve been able to achieve these market share gains with significantly lower incentives than our competitors. For example, in the third quarter our US incentives were approximately 2.4 percentage points lower than the industry average, a gap that has widened from last year’s third quarter where we were 1 percentage point below the industry.”

On the credit quality side, “our charge-offs year to date at GM Financial are almost spot on…So things are really going as planned. We did expect a modest moderation in credit y/o/y, and that’s exactly what we’re seeing. Our portfolio is heavily prime and the prime credits have continued to perform very, very strong with good employment levels, good household income, and still pretty strong household balance sheet. So, all in all, credit is developing very much in line with what we expected.”

From Pulte Group:

“We tracked consumer sentiment among visitors to our website and our communities, and as you might expect, buyer confidence ebbs and flows with meaningful changes or even just volatility in interest rates. This again proved to be the case as buyers reacted to the movement in rates during the third quarter. With mortgage rates hovering around 6.5% to begin the third quarter, buyers were generally less inclined to sign a purchase agreement. As interest rates declined through August and September, however, we experienced a notable pickup in overall activity.”

What’s happened since? “October has shown the highest web traffic, foot traffic, and lead volume of the year. However, the recent rise in interest rates has demonstrated a more typical seasonal selling pattern and incentives have remained elevated as a consequence.” Maybe this last point is why the stock sold off yesterday.

And further on this last point, “I think buyer reaction to the movement in rates, both down and now up, again affirms that affordability remains a tough hurdle to get over for many potential homebuyers.”

As for incentives, “Given the high cost of home ownership, rate buydowns remain a powerful incentive in helping consumers bridge the affordability gap. In the third quarter, approximately 30% of our homebuyers accessed our national rate program.”

From L’Oreal:

“I’m pleased to report a solid like for like growth of plus 6% for L’Oreal, despite the multiple external turbulences that impacted the third quarter, some expected, some less. The expected headwinds were the continued normalization of the beauty market growth in Europe and North America, as inflation related pricing continued to ease. The less than expected, or should I say worse than expected, turbulences were in North Asia, in the Chinese ecosystem, where markets turned even more negative, particularly in luxury, both in the domestic and in travel retail, where traffic did not convert into purchases.”

From Texas Instruments:

"Our results continue to reflect the asynchronous market behavior that we've seen throughout this cycle...First, the industrial market was down low single digits as customers continue to reduce their inventory levels. The automotive market increased upper single digits, primarily due to strength in China. Personal electronics grew about 30%, enterprise systems was up about 20%, and communications equipment was up about 25% as the cyclical recovery continued in these three markets."

Specifically with autos, "Our automotive revenue in China is at an all time high...Now the rest of the automotive market is different, okay? We are seeing continued weakness over there."

With personal electronics, which includes PCs and smartphones, "it's still running at a lower level than the peak. It's running about 20% lower than the '21 peak. So there is still room to grow."

Finally from Robert Half, the placement agency of both part time and full time jobs:

"While client budgets remain constrained and decision cycles extended, business confidence levels are improving, aided by continuing progress on inflation and the beginning of a global rate cutting cycle. This is reflected in our most recent weekly sequential results, which have been stable and consistent for the past 12 to 14 weeks."

This was a very interesting exchange and directly related to AI. The question, "are you seeing anything around finance and accounting positions and the risk from GenAI fulfilling a lot of these temp tasks?

The answer, "we're seeing very little currently as it relates to GenAI. As we've talked about on prior calls, we've seen many technology cycles in the past where there was automation of spreadsheets, of payroll, of tax preparation, ERP, bookkeeping. And all those cycles have been much more impactful to accounting and finance, all of which we grew through individually, and we also grew through in the aggregate. And we think those were much more significant when you effectively went from manual to automated in each of the areas I talked about, such that today, virtually all our clients, even the smallest, have automated accounting systems. And the impact of GenAI relative to that starting point pales in comparison to what I mentioned otherwise."

As for earnings overall, this was from FactSet a few days ago pointing to expectations that about all of the Q3 earnings growth will come from the loved 7 with no contribution from the other 493. 

The September US Architecture Billings Index held at 45.7, remaining well below 50 and very noteworthy was the drop in the multi family residential component which dropped to just 41.7 from 44. This follows what we saw last week with multi family housing starts which are dropping sharply. So yes, enjoy the rent moderation now and into next year but we're sowing the seeds for a reacceleration in rent growth in late 2025 and in 2026. The AIA chief economist said "Despite recent rate cuts by the Federal Reserve, many clients remain on the sidelines with regard to proceeding on planned projects. And while new project opportunities also emerge, clients are cautious about which to pursue. Fortunately, architecture firms report backlogs of 6.4 months on average, which remain above pre-pandemic levels and are an indication that there is existing work in the pipeline."

Lastly today, mortgage applications fell again with the rebound in mortgage rates. While they held flat at 6.52% on average according to Freddie Mac, purchases fell 5.1% w/o/w and refi's were down 8.4%. With home prices up about 50% over the past 4 years (thanks Fed for buying all those mortgage backed securities), it's no wonder that purchase apps fell immediately again in response to the rise in rates.

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

I remain short B. Riley Financial  (RILY)  (from the mid-$50s, now $5.98/share):

US: Futures are modestly lower. MegaCap Tech are mostly lower: NVDA -0.4% and TSLA -0.6%. SBUX fell -5.3% as it missed revenue expectation; MCD is -6.0% lower given the E. Coli headlines. Bond yields are ~2bp higher this morning. USD is lower. Commodities are mixed: base metals are higher, oil and precious metals are lower: oil fell 1.0%. Today, key macro data includes Existing Home Sales and Fed Beige Book. We will have a busy earnings schedule across sectors, including BA, IBM, KO, T, TMUS, TSLA, and VRT.

and...

EQUITY AND MACRO NARRATIVE: Yesterday, SPX finished flat as investors digested a mix of earnings results and macro set-up. On the macro level, data flow were relatively muted: Philly Fed Non-Mfg Index and Richmond Fed Mfg Index both surprised to the upside, but investors are focusing more on tomorrow’s PMIs release. It has been three weeks since the initial missiles attack in the Middle East, and the nervousness around possible Israel’s response in near-term has been elevated: oil added +1.5% yesterday and has been up xx% this morning. While we saw some stabilization in yields, the recent rapid repricing still weigh on equities, but sector performance today were quite mixed: KRE managed to rebound +1.3%, while RTY and XHB fell 47bp and -2.6%, respectively. It tells me that today’s performance were more related to fundamental drivers: Regional banks earnings so far mostly outperformed, indicating favorable outlooks and improved credit quality. Homebuilders, on the other hand, showed mixed outlooks: despite a modest EPS beat, today’s PHM gross margin miss led to a -7.2% decline in the stock.

Today, key macro data include Existing Home Sales and Fed Beige Book. We will have a busy earnings schedule across sectors. Some key themes to monitor: (i) AI and Tech: VRT earnings pre-market will be critical to assess data center demand. IBM earnings could also be interesting to assess its software business growth; (ii) Mag 7: TSLA will kick off the Mag 7 earnings today after market close. TSLA has dropped over 15% MTD, driven by underwhelming Q3 deliveries and Robotaxi. While its story is not particularly tied to the broader AI trend, its earnings may help set some sentiment ahead of major Mag 7 releases net week. (iii) Consumer: with banks earnings all pointing to the soft-landing scenario, KO earnings could provide important color on consumer demand, particularly on the mid to low-income consumers.

Apple  (AAPL)  is trading lower in premarket reflecting this: Apple Sharply Scales Back Production of Vision Pro

Upside:

-LRN +25% (earnings, guidance)

-MGNI +7.7% (Disney and Magnite announce two-year deal renewal)

-LILM +6.7% (partners with GE Aerospace to deliver eVTOL flight safety)

-TDY +5.0% (earnings, guidance)

-VICR +4.8% (earnings)

-JANX +3.6% (Director Ra Capital Management buys 1.2M common shares at $44.75/shr)

-WFRD +3.6% (earnings)

-NTRS +3.5% (earnings)

-T +3.3% (earnings, guidance)

-APH +3.2% (earnings, guidance)

-EWBC +2.9% (earnings, guidance)

-ICU +2.9% (Stanford Medicine is cleared to actively enroll subjects in Adult Acute Kidney Injury Pivotal Trial)

-TXN +2.4% (earnings, guidance)

Downside:

-ANRO -63% (Phase 2b study of ALTO-100 in patients with major depressive disorder (MDD) did not meet primary endpoint)

-CSTM -17% (earnings, guidance)

-ENPH -15% (earnings, guidance)

-CLDI -11% (prices 2.05M shares at $1.00/shr in ~$2.0M registered direct offering and concurrent private placement)

-TELA -9.6% (prices 12M shares and prefunded warrants at $2.25/shr in underwritten offering)

-VRT -7.2% (earnings, guidance)

-WGO -7.1% (earnings, guidance)

-MCD -6.8% (confirms report of e.coli outbreak linked to Quarter Pounders, which will be removed from menu in 4 states; outbreak may be linked to slivered onions from one regional supplier)

-APRE -6.5% (presents prelim findings on Oral WEE1 Inhibitor APR-1051)

-EDU -5.3% (earnings, guidance)

-CSGP -5.1% (earnings, guidance)

-RHI -4.1% (earnings, guidance)

-STX -4.1% (earnings, guidance)

-MMYT -3.8% (earnings)

-HLT -3.5% (earnings, guidance)

-MANH -3.4% (earnings, guidance)

-GEV -3.2% (earnings, guidance)

-SBUX -3.2% (reports prelim Q3 earnings, suspends guidance)

-ODFL -2.8% (earnings, guidance)

-QCOM -2.7% (ARM said to end architectural chip license agreement with Qualcomm)

Charts from 8:14 a.m. ET:

Chart from 8:33 a.m. ET:

Citigroup cuts  (SBUX)  price target to $96 from $99.

The S&P Short Range Oscillator is at 2.28% vs. 2.77% the prior day.

* It took over 220 years for the U.S. to add $12 trillion of debt.

* It took only 4 years for the U.S. to add another $12 trillion of debt.

Over the last few days I have used the move to new highs as an opportunity to expand my short exposure — mostly via short Index calls (in which I take an offensive position, in theory, benefiting from the premiums in the call that I am selling).

As you all know, I (charitably) view the upside reward as quite small relative to the downside risk — so I have been trading with a short bias now.

An updated market outlook — expressing my concerns — will be delivered early in my Diary tomorrow.

Break in!

Investment short, Winnebago  (WGO) , spits the bit, missing on both top and bottom line and issuing very weak guidance.

The shares are -$5 (or close to -10%) in premarket trading.

Here is the release: Exh 99.1 2024 Q4 Earnings Release

The short hits ( (SBUX) ,  (MCD) , et al) keep on coming despite the averages being near an all-time high!

* Price to sales is a better measurement of (over)valuation that price to B.S EPS...

The most overvalued equity market since the dot-com bubble:

“If you want a guarantee, buy a toaster.”

- Clint Eastwood

Bonus — Here are some great links:

Yields Keep on Truckin'

Which Stocks Crushed Earnings 

Watch the Japanese Yield

Only 3 of the Mag 7 Are Worth Buying

I have a morning medical issue for a family member that I have to address.

I will be out all morning and back at about noon.

I had planned to deliver my updated market outlook yesterday but things got a bit hectic and will wait until tomorrow.

* Large  (MSOS)  inflows recorded yesterday.

 From our Comments Section:

robbo

Dougie, I fully understand trimming on a spike up on cannabis related stks...but respectfully, and on the other hand, after so much pain for so long, why sell the first big uptick?

Dougie Kass

I ALWAYS TRADE AROUND POSITIONS.

The next catalyst is Florida Amendment vote.

The polls show about 65% favorable, the state needs 60% threshold.

We are now getting the Florida bounce before the vote, a vote that is not certain.

The next critical catalyst is the December DEA meeting regarding rescheduling (and the elimination of 280e taxes which raises proftiability).

But DEA has another sixty days to announce the outcome!

So, to conclude, I am not just taking some off because of the ten percent rise today... I am because there are clear catalyst that reside "down the road" giving me plenty of time to buy back what I sold.

Unless I am missing something, this is simply a technical move of a group in the basement that ripped through some important technical levels to the upside.

Plain and simple.

I remain short Starbucks  (SBUX) :