As of 4:20 p.m.:

Closing Breadth

S&P 500 Sectors

Nasdaq 100 Heat Map

Nasdaq Advance-Decline Intraday Graph

The top 12 stocks of today's top sector (energy):

There will be no "Things" today as I am leaving early for a business trip.

I will be returning on Friday morning.

I have moved to medium-sized short the indices (from small-sized).

From Charlie:

The Week in Charts (11/13/24) - Charlie Bilello's Blog

Here is an interesting article on Bloomberg ("OpenAI, Google and Anthropic Are Struggling to Build More Advanced AI") — with the key section excerpted — although I guess nobody will care as long as numbers go higher, short-term:

But the model, known internally as Orion, did not hit the company’s desired performance, according to two people familiar with the matter, who spoke on condition of anonymity to discuss company matters. As of late summer, for example, Orion fell short when trying to answer coding questions that it hadn’t been trained on, the people said. Overall, Orion is so far not considered to be as big a step up from OpenAI’s existing models as GPT-4 was from GPT-3.5, the system that originally powered the company’s flagship chatbot, the people said.

OpenAI isn’t alone in hitting stumbling blocks recently. After years of pushing out increasingly sophisticated AI products at a breakneck pace, three of the leading AI companies are now seeing diminishing returns from their costly efforts to build newer models. At Alphabet Inc.’s Google, an upcoming iteration of its Gemini software is not living up to internal expectations, according to three people with knowledge of the matter. Anthropic, meanwhile, has seen the timetable slip for the release of its long-awaited Claude model called 3.5 Opus. These issues challenge the gospel that has taken hold in Silicon Valley in recent years, particularly since OpenAI released ChatGPT two years ago. Much of the tech industry has bet on so-called scaling laws that say more computing power, data and larger models will inevitably pave the way for greater leaps forward in the power of AI. The recent setbacks also raise doubts about the heavy investment in AI and the feasibility of reaching an overarching goal these companies are aggressively pursuing: artificial general intelligence.

The whole premise of these systems is the notion of “scaling” – which roughly means AI performance improves massively with more computing power. Which is a hypothetical notion, that has not been proven, and in fact is seemingly now being proven wrong. But for the time being, the hyperscalers still believe in it, probably in part because they have nothing else to hang their hat on. And they have the money (for the time being although they are burning it at amazing rates), and nobody wants to give up, so they keep throwing more money at the problem. One more reason why they are all trying to pile in to Nvidia's  (NVDA)  new part. It is a last desperate hope that something will change with increased compute power. But nothing is changing. The whole approach does not work. Scaling does not work. You do not get exponential improvement throwing more compute power at a broken approach.

Moreover, this is why (according to Macro Strategy) that the Apple  (AAPL)  experiment returned the results that it did:

A3. Yes, and it is devastating. LLMs have been improving at answering 8000 high school equivalent maths questions, from ChatGPT3 getting 35% right, to 4.o getting 95.3% right. But the Apple researchers thought this might be because the LLMs were trained on the test. So, they changed names and numbers in the questions, without altering the mathematical logic. The LLMs were 0.3-14.6% worse at answering. Then they added non-relevant clauses to questions, which didn’t change the logic of the questions either, and the LLMs were 17.5-65.7% worse at answering. The researchers concluded ‘Overall, we found no evidence of logical reasoning in LLMs’.

Post Script

One more interesting related thing, cryptocurrency has been a rocket ship lately.

The total market cap for crypto seems to be about $3 trillion. NVDA's capitalization is $3.5 trillion.

Here is chart of Bitcoin vs. NVDA over the last 10 years — and it is pretty interesting. This tells you there is more to the story than just AI re how NVDA (and anything else) trades.

It will be interesting going forward how money sloshes back and forth between the two things, which as much as anything else, have become a repository for excess liquidity:

Once again, the drop in bond prices (and rise in yields) are diverging from a spirited rise in equities from the lows. (This is serving to reduce the equity risk premium even further — see my opening missive this morning)

The yield on the 10-year Treasury is +3 basis points to yield 4.455% and the long bond yield is +7 basis points to 4.639%.

Momentum rules the day as the value proposition for equities deteriorates as machines and algos rule the day.

Investment short Chegg  (CHGG)  is down by another -20% (to close to $1) reflecting weak top and bottom-line results when combined with the withdrawal of 2025 guidance/targets.

The company has been hit by competitors' deployment of AI tools and features, which have overshadowed CHGG's suite of product offerings.

A good example is Google's rollout of AI Overviews, an AI-generated answer at the top of a search result (keeping users on the search page instead of being led by third-party sites like Chegg). As well, the broad adoption of free generative AI Products is taking students away from Chegg.

In order to respond, the company has embarked on a large restructuring effort which is aimed at reducing head count by over twenty percent.

But with AI available on mobile phones, personal computers, tablets, etc. Chegg's relevance as the go-to platform for students seeking homework assistance is rapidly deteriorating.

I added to  (BA)  at $141.87 and  (PPLT)  at $86.33 longs.

On the rally to +10 handles I have shorted more  (SPY)  at $597.76 and  (QQQ)  at $512.20.

From Peter Boockvar:

40 yr JGB yield hits 16 yr high/The rate move impact on those in real estate/Other things

Following the US rate rise yesterday, yields in Asia jumped, particularly in Japan and Australia and they are moving up again in Europe. The epic bond bubble was global when $18 trillion of negative yielding securities reached its apex in December 2020 and the unwind and bear market is global too. In particular, the Japanese 40 yr bond yield rose to the highest level since 2008 overnight and I continue to focus on this maturity because it is least influenced by what the BoJ does on the short end. A factor too in Japanese yields was the higher than expected October PPI print where it rose 3.4% y/o/y, above the estimate of up 2.9% with the weaker yen likely a factor. The yen today by the way is teasing the 155 level again with 160 the real big level.

At a Yahoo Finance event yesterday, Neel Kashkari spoke and this stood out to me on the Fed's balance sheet where he basically said that the bar is quite high for them to stop shrinking it.

JGB 40 yr Bond Yield

These comments from VICI Properties, a REIT we own that focuses on the gaming and experiential side of real estate ownership, came on November 1st's earnings call but I finally got around to read the transcript and it reveals the real world impact on the real estate industry from these meme like moves in the US Treasury market and the swift rise in rates seen over the past few months just as many thought that Fed rate cuts were going to ease the rate pain.

The 10 yr yield was just below 4.40% on that day and the question to the CEO was this referring to the rise in the yield off the 3.60% low in September, "Do you think that's had any effect on just the propensity of your counterparts to want to transact or on just where pricing might need to be?"

The response, "I wouldn't say that move over the last month has necessarily by itself been highly impactful, but it's all been part of a period of volatility that has just been, frankly, it's been kind of nauseating. And I do think it's led to a level of indecision and inaction that is reflected certainly for us and what we've been able to come forward and tell you about. And needless to say, we very much hope that this period of volatility will soon start to pass." This of course was just days before the election too.

"Just to traumatize that volatility. Back in 2018, the number of days in the trading year when the US 10 yr moved 10 bps or more was 3; in 2019, it was 7; in 2020, it was 16; in 2021, it was 8; in 2022, it was 46 days; it was 39 days last year. And given the volatility we've seen even this week, I think we're into the 20s now. And this is really just an example of how a lot of people on both sides of the transaction table have just been trying to figure out where am I today? And where the hell am I going to be next week? And needless to say, we are among those many in both America and globally who hope things really kind of calm down next week and that the kind of volatility we've especially seen in the MOVE index starts to quiet down because it has definitely led to all kinds of different behaviors by investors."

Rocket talked about the rate volatility too last night:

"Over the past few months, the market has thrown our industry almost every curveball imaginable. With inflation easing, the Fed cut rates for the first time in four years. But in an interesting twist, while the Fed lowered rates, mortgage rates did not follow suit. Instead, both the 10 yr treasury yield and the 30 yr fixed mortgage rate actually increased." Yep.

They see things though as glass half full, "While affordability and inventory are certainly still challenges, the market is showing signs of improvement compared to last year...Our mindset reflects the importance of optimism in a world that continues to be riddled with uncertainty. That is because homeownership is and always will be the cornerstone of the American Dream."

From another business highly reliant on interest rates, Home Depot:

"From a geographical perspective, storms and more favorable weather throughout the quarter drove a higher degree of variability in the performance across our divisions and four of our 19 US regions delivered positive comps."

"As weather normalized, we saw better engagement across seasonal goods and certain outdoor projects. But, we continue to see pressure on larger remodeling projects, driven by the higher interest rate environment and continued macroeconomic uncertainty." The pressure was mostly on kitchen and bathroom remodels.

In the quarter, "our comp transactions decreased .6% and comp average ticket decreased .8%." Their guidance for fiscal 2024 was a comp drop of 2.5% y/o/y.

On the heels of the MSG and Live Nation earnings results, Sphere Entertainment reported last night, a venue that is a must see. "Beyond original content, strong consumer demand continues to drive concerts and events at Sphere."

From Shift4 Payment, a payment processing solutions provider:

"Well, we grew incredibly quickly, but as you've heard from others, clearly there's been some consumer spending softening, especially in some of the verticals that we serve."

"During the quarter, we experienced the customary seasonal spending lift in the months of July and August as consumers take vacations and travel more. Although, as we noted on the Q2 call, spending in restaurants had moderated, and most customers in that vertical were experiencing a roughly 3% decline in same store sales y/o/y. While restaurants did not materially worsen, we also saw some modest softness in other verticals in September as leisure travel subsided in conjunction with back-to-school."

"Sports and entertainment has been a particular bright spot with numerous overlapping seasons and the World Series leading to record weeks."

CAVA continues to crush it and the stock is ripping higher pre market:

They saw an 18.1% jump in comps, "driven by a 12.9% increase from guest traffic, and a 5.2% increase from menu price and product mix."

What's the key to their success? "It is clear that our value proposition, quality Mediterranean cuisine where taste and health unite, the convenience of our multi channel format and the experiences we provide across our physical and digital channels is resonating with consumers."

With another tick up in mortgage rates with the average 30 yr at 6.86%, up 5 bps w/o/w, mortgage apps were little changed. Purchases rose 1.9% but after dropping by 5.1% in the week before. They continue to bounce along 30 yr lows and continues to be an economic drag on all the ancillary activities that take place upon the buy and sale of an existing home. Refi's fell 1.5% and are at the lowest level since June.

Refi's

Purchases

From Peter Boockvar:

CPI rundown

The October CPI data was exactly in line with expectations with .2% headline and .3% core gains m/o/m and 2.6% and 3.3% y/o/y increases. That compares with 2.4% and 3.3% in the month before. Energy prices were flat m/o/m but down 4.9% y/o/y. Food prices grew by another .2% m/o/m and up by 2.1% y/o/y. Food at home continues to be cheaper than eating out. Prices here rose .1% m/o/m and 1.1% y/o/y. Eating out saw prices up by .2% m/o/m and 3.8% y/o/y.

Services inflation ex energy continues to lead the inflation higher as it always does. Prices rose .3% m/o/m and 4.8% y/o/y. Rents are certainly still a factor with OER up by .4% m/o/m and 5.2% y/o/y. Rent of Primary Residence was up .3% m/o/m and is reflecting the deceleration and up by 4.6% y/o/y. Yes, in reality blended rents are running up about 2-3% but CPI never captured the spikes seen a few years ago. Medical care prices rose .3% m/o/m and up by 3.3% y/o/y and is a factor too in the persistency of services inflation. Health care insurance prices rose .5% m/o/m and by 6.8% y/o/y in particular. After skyrocketing vehicle insurance price increases, they fell .1% m/o/m, though still up 14% y/o/y. The cost of fixing one’s car saw a 1.1% m/o/m jump and higher by almost 6% y/o/y. Likely due to the cuts in airline capacity, airline fares jumped by another 3.2% m/o/m, the same pace in September and after spiking by 3.9% in August. They are now higher by 4.1% y/o/y. Hotel prices rose .5% m/o/m but down by .6% y/o/y.

Core goods is still where there are no price increases as they were flat m/o/m and down 1% y/o/y. Used car prices though did rebound by 2.7% m/o/m but still fell 3.4% y/o/y. New car prices were unchanged vs September but down 1.3% y/o/y. Apparel prices fell 1.5% after rising by 1.1% last month and are little changed y/o/y. Prices for things around the home, like window/flooring, furniture/bedding, tools/hardware and appliances, saw no change in prices m/o/m and down 2.2% y/o/y.

Bottom line, while the Fed still prefers the PCE inflation stat, mistakenly I believe, and running monetary policy off it, core CPI has risen by .3% m/o/m for a 3rd straight month and remains sideways y/o/y still above 3%. Services inflation continues to be where it is coming from, again as it always does, while goods prices are about flat. Treasuries rallied with yields dropping on the in line figure and no surprise as positioning has certainly gotten more beared up. The 2 yr yield is down 10 bps post data at 4.26% and the 10 yr yield is lower by 5 bps at 4.38%, though still staying above the 4.30% level I’ve pointed out as the 50% retracement of the 5% yield high last year and the 3.60% low in September. Inflation breakevens are down too.

As for the Fed, if they focused more on core CPI instead of core PCE, they would stop cutting interest rates as the REAL YIELD here is just about 125 bps. That is restrictive? Still for some where market rates are, particularly small and medium sized businesses and anyone in commercial real estate but easy for many others and just look at the markets for evidence of that. Also, with respect to what will come policy wise from the incoming administration, while Jay Powell said they can’t yet model what policy will be, wouldn’t it be smart to at least wait to see it before cutting rates again?

Core CPI y/o/y

* It's overvalued against interest rates, earnings, cash flow and sales ... and most other metrics that have stood the test of time. 

* Moments like this are always good times to remind oneself: There is no upside without downside, no reward without risk.

Astonishingly (as noted by Rosie), with the recent rise in interest rates, the equity risk premium is only nine-basis points away from turning negative. This means that investors are now willing to pay to take on equity risk, instead of getting paid:

Here is a longer-term chart of the S&P earnings yield vs. the yield on the 10-year Treasury note:

As I wrote yesterday:

Bond Market Update ... And Many More Accumulating Concerns

By Doug Kass

Nov 12, 2024 12:40 PM EST

Equities continue to ignore rising rates — that ascension is conspicuous today:

* The yield on the 1-year Treasury note is +8 bps to 4.394%.

* The yield on the 5-year Treasury note is +12 bps to 4.315%.

* The yield on the 10-year Treasury note is +12 bps to 4.428%.

* The yield on the long bond is +9 bps to 4.572%.

Bottom Line

So we have an overbought on the S&P Oscillator (near 3.5%), a Woodstock-like drug festival in Tesla (TSLA) and Nvidia (NVDA) 0DTE call options, sky-high price-earnings multiples, near universal investor bullishness, evidence that the post-election breadth thrust might be over (look at today's 2-1 negative breadth), (RSP) (equal weighted S&P) -0.86% and (IWM) (Russell Index) -1.67%)... and now bond yields starting to break out to the upside.

What, me worry?

Here, I put into perspective the sharp upside movement in various asset classes since the election - only seven days ago:

As it relates to bitcoin and other crypto currencies it is always important to remember that when asset prices move parabolically, it is always a good time to remind oneself: There is no upside without downside, no reward without risk.

Valuations Appear Inflated

The S&P CAPE Ratio (the cyclically adjusted price-to-earnings ratio) has crossed above 38 for the third time in history and is now higher than 98% of all historical valuations:

Equities, to this observer, are overvalued.

Charts from 8:34 a.m. ET:

Chart from 8:50 a.m. ET:

Upside:

-SPIR +31% (to sell its maritime business to Kpler for ~$241M; Intends to use proceeds to retire all outstanding debt and invest in near-term growth opportunities)

-DOX +30% (earnings, guidance)

-RKLB +26% (earnings, guidance)

-HNST +23% (earnings, guidance)

-PAY +22% (earnings, guidance)

-CAVA +16% (earnings, guidance)

-HNRG +16% (earnings)

-OKLO +12% (secures partnerships for up to 750MW of power for US data centers)

-CCCS +8.4% (Morgan Stanley Raised CCCS to Overweight from Equal Weight, price target: $15)

-SPOT +8.4% (earnings, guidance)

-BRTX +6.1% (earnings; reports new 26–52 week blinded positive preliminary Phase 2 BRTX-100 Clinical Data)

-PUBM +3.4% (earnings, guidance)

-FWONA +2.2% (pursuing a plan to split off the Liberty Live Group)

Downside:

-SYRS -84% (SELECT-MDS-1 Phase 3 Trial of Tamibarotene in Higher-Risk Myelodysplastic Syndrome with RARA Gene Overexpression Did Not Meet Primary Endpoint)

-SAVE -64% (files Form12b-25; cuts Q3 guidance)

-IAUX -32% (earnings)

-ZI -15% (earnings, guidance)

-PGNY -14% (earnings, guidance)

-RKT -11% (earnings, guidance)

-SOUN -8.5% (earnings, guidance)

-MARA -8.4% (earnings)

-SWKS -7.1% (earnings, guidance)

-CART -6.9% (earnings, guidance)

-DOX -3.8% (earnings, guidance)

-SMCI -3.6% (discloses it is unable to file its Quarterly Report on Form 10-Q for the period ended Sept 30, 2024 in a timely manner without unreasonable effort or expense)

-PLUG -2.4% (guidance from investor event)

Adding to  (SPY)  and  (QQQ)  shorts on the run-up following the inflation data:

* SPY at $597.92.

* QQQ at $513.53.

* Authored by El-Erian

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

“Observe that the blade of grass that resists the lawnmower gets cut down while the blade that bends remains uncut.”

- A Sign Above PTJ's Desk

Bonus — Here are some great links:

November Option Expiration

Crypto to the Moon

Interest Rates to Decline

The History of Technical Analysis

From JPMorgan:

US: Futs are slightly lower into CPI, where levels are expected to rise for the fourth month, as bond yields are flat to down 1bps. Pre-mkt, Mag7 is mixed, and Semis are lower; Banks, Energy, Industrials, and HC are seeing a bid. USD is flat for the first time this week; cmdtys are higher led by Energy and Precious Metals. CPI and 5x Fedspeakers are the macro focus for today as the earnings calendar thins out.

and...

EQUITY AND MACRO NARRATIVE: Yesterday was a bit of a confusing session as we saw the Bond Market return and immediately push yields higher which triggered a (perceived) pause in the Equity rally which saw profit-taking in small-caps and Cyclicals as money flowed back into MegaCap Tech. The Semis-to-Software rotation appears to be on-track with the +Software/-Semis JPM Delta One Basket (JPPQSFSM Index) now +20.9% over the last month.

All three candidates for Senate majority leadership oppose cannabis legalization:

* From Jim Chanos...

* Shorted  (NVDA)  at $148.41.

* Shorted  (SPY)  at $596.29.

* Shorted  (QQQ)  at $512.64.