It seemed like the indexes were largely stuck for most of the trading day following the July CPI reading that was very anticipated, but elicited little reaction as it came in as expected. The Nasdaq was flat, the S&P 500 was barely positive while the Dow tacked on more than 200 points. 

The rotation into small-caps that was a huge theme in July has largely reversed in August. The Russell 2000 was down 0.5% Wednesday and has lost some 8% so far this month.

Some odds and ends to finish out the day:

-- Israel-headquartered Teva Pharmaceutical TEVA hit a five-year high today despite continued tensions in the Middle East. 

-- Moody's is in a generous mood today as it revised the State of New Jersey's outlook to positive from stable. It also upgraded the debt ratings on regional bank KeyCorp KEY earlier today. I don’t think regional banks have seen the worse from the CRE implosion, and I expect to continue to see myriad license plates from new emigres from the Garden State down here in Delray Beach for what it is worth.

-- Gilead Sciences GILD, a covered call trade idea of mine from a few months ago, continues on its recent roll. Today it announced that the FDA approved its liver disease therapy Livdelzi (seladelpar). Gilead picked up this new asset with its recent acquisition of of CymaBay Therapeutics CBAY.

As always, it was fun standing in for Doug Kass on the Daily Diary despite a lackluster day in the markets. Until next time.

Markets remain mixed as it has largely been an uneventful day of trading to this point. Add Avon Products to the list of retailers that have filed for Chapter 11 bankruptcy in recent months. Albeit for a novel reason — litigation awards involving the talc component of some of its beauty products that have been alleged to have caused cancer in some verdicts.

As for the retail sector, according to CBS News, more than 3,000 retail locations have been shuttered so far in 2024 and corporate bankruptcies are at levels not seen since 2010. UBS was out this spring stating about 45,000 retail stores may close in the coming years as retail’s physical footprint increasingly shifts to serve as fulfillment and distribution centers. In addition, conditions for the majority of consumers continue to deteriorate as the jobs market weakens and inflation continues to take its toll.

Let's end on a bright note, with one of the best stories of the past 15 years, in my opinion, one gets too little media attention. The U.S. just hit record oil production of 13.4 million barrels a day and is the global production leader.  Production has increased 350% from 2008 thanks to fracking and other innovation technologies. I just hesitate to think what inflation would be right now without this development or where crude oil prices would be.

Markets remain mixed as we pass the halfway point of trading Wednesday. Moody's upgraded its outlook on KeyCorp's KEY long-term issuer and senior unsecured debt ratings to stable from negative. The stock is flat on the day, but it is nice to see a regional bank being upgraded. My personal view is the worse of CRE delinquency and default rates is still ahead of us, however. KEY does yield a bit over 5% on a side note.

Click here for Sarge Guilfoyle's recent take on KEY.

Starbucks SBUX has added some $20 billion to its market cap since the coffee giant lured Brian Niccol away from Chipotle Mexican Grill CMG as the company's new CEO. I won’t be surprised to see some profit taking in the stock through the rest of the week. A 26x forward earnings multiple with a growth-challenged name facing a consumer under considerable duress, seems fully valued to me regardless of the wunderkind coming into the C-suite.

A shout out to Charlie Bilello for this little factoid around today’s CPI report. ‘According to the US Government, the cost of health insurance has declined 30% over the last 2 years and 8% over the last 5 years’. Wolf Street also had a good take on yesterday’s PPI report for readers that want an additional grain of salt to ponder about "official" measures of inflation.

Well, it has been quite an anticlimactic day of trading over the first two hours here on Wednesday. The markets are basically flat with the Nasdaq off .2% and the Dow and S&P 500 making minor gains. After Tuesday’s huge rally off a lower-than-expected PPI reading, maybe this was to be expected with CPI coming in line to expectations. 

'Only the Shadow Knows'

The yield on the 10-Year Treasury is down two basis points to 3.82% and is maintaining a just over 10 bps divergence with the 2-Year Treasury. It seems a matter of when not if these yields uninvert for the first time since July 2022. Will that mean a recession is imminent like it has historically? As my late father liked to say ‘Only the Shadow knows."

Google This, Google That

The story that the federal government might be considering anti-trust action against Alphabet GOOGL following a recent legal ruling seems to be gaining steam. Bloomberg is out with a piece saying enforcers are seriously considering action. I personally would love to see Google be forced to divest YouTube at the very least. Being a libertarian, I don’t like any firm having such a monopoly on what information individuals are shown. That being said, Google has a ton of lobbyists and is a big PAC contributor, so I do not think anything substantial comes from this. I would love to be proven wrong, however.

Moves in My Portfolio

Watching the markets is akin to watching paint dry at the moment. In my own portfolio, I did put some funds back into three-month Treasuries this morning. They still yield north of 5%, for how long is anybody’s guess, but my gut tells me they will have a 4 handle by year-end. 

I also picked up some Corbus Pharmaceuticals Holdings CRBP. I established a small starter position in this biopharma via covered call orders. The stock is off around 10% from recent highs on some profit taking. The shares enjoy strong analyst support, and the company has two promising compounds in early-stage development. One of those triggered a huge rally in the stock earlier in this year on very encouraging Phase 1 data. In addition, the options premiums against this equity are very large and have solid liquidity. This is probably a story I will highlight in further detail in my covered call trade idea this weekend.

Markets had little reaction to the July consumer price index reading, which came in as expected. In early going, equities opened flat. The yield on the 10-Year Treasury also opened flat. Given the huge rally in equities over the past four trading sessions, it isn’t surprising stocks open listless this morning. It wouldn’t be shocking to see some profit taking later today.

Commodity Concerns

Commodities are signaling concern around global growth as iron ore prices hit their lowest levels since May of last year this morning. Rebar prices hit 2017 lows. China is the main driver of this downward trend, given the country is by far the biggest end user of steel. A protracted property downturn shows no signs of ending, either. I have always been curious what the global impact of China’s housing bust will eventually have on the global economy. The overbuilding there and subsequent downturn makes the housing bust in the U.S. in 2007 look like a walk in the park by comparison.

Earnings Update

Second-quarter earnings reports continue to hit the wires. Lidar maker Ouster Inc. OUST is seeing its stock get crushed after posting a steep loss and providing lower forward guidance than expected. The shares are off nearly 25% to just over eight bucks a share. The company came public during the special purpose acquisition company -- "SPAC" -- wave and initial public offering boom, which were both triggered by the Fed’s easy money policies of several years ago. The shares debuted in October 2020 and quickly climbed above $150 a pop, and have been in a downward trend since. Sphere Entertainment Co. SPHR, meanwhile, is up 7% after posting second quarter results. This entertainment spin-off of MSG Entertainment saw revenues more than doubled from the same period a year ago but is having a hard time controlling expenses.

The reading for the much-anticipated July consumer price index is a 0.2% month-over-month rise both for the headline and core. This matched expectations. Inflation levels have risen 2.9% according to the CPI over the past 12 months, a bit less than the 3% consensus.  Futures are flat and muted in reaction.

Victoria's Secret Strategy

It looks like Victoria's Secret & Co. VSCO is trying to be today’s Starbucks Corporation SBUX. Yesterday the stock of the coffee purveyor rose nearly 25% after it was announced it was bringing in the CEO of Chipotle Mexican Grill CMG to lead the struggling company. Today, Victoria’s Secret is using the same playbook to announce a new CEO, boosting shares 15% in premarket trading. Of course, it also helped the lingerie and beauty brand also announced preliminary second-quarter earnings per share way above estimates and narrowed its projection for a same-store sales decline for the quarter of only 1% to 2%.

Inflation Expectation

While the market is more than happy with July’s producer price index reading yesterday and today’s CPI report, inflation still is a clear and present danger as governmental statistics don’t always capture an accurate picture of the true inflation rate in my humble opinion. Take auto insurance for example. A new report published by Insurify, which is an insurance comparison shopping site, shows auto insurance premiums rose at a 15% year-over-year clip in the first half of 2024. They are now up a whopping 48% from 2021.

The lowest average mortgage rates in a year are having an impact on the housing sector as weekly refinance activity surged 45% last week. I still think we need to see the average 30-Year mortgage rates with a 5 handle to significantly improve the housing market. New NAR rules getting implemented at end of the week as a result of a litigation settlement could reduce realtor commissions substantially. This also could help housing affordability. They could also ignite somewhat of an exodus of poorly performing realtors out of the industry.

It is good to sit in for Doug Kass today as he enjoys a well-deserved vacation. It is hard to believe just one week ago investors were exhaling as markets rebounded from Tokyo's worst daily decline and the Volatility Index briefly soared above 60 for the first time in four years. Many economic pundits like Jeffrey Siegel were calling for immediate and deep cuts to the Fed Funds rate, as there was no time to wait for the September Federal Open Market Committee meeting.

It is almost like that huge volatility surge had the half-life of a mouse fart and current expectations are slightly leaning toward a quarter percentage point cut to interest rates in mid-September when the oracles of the central bank reconvene. A half-point cut is also on the table. Much will depend on the monthly consumer price index rating that will hit the wires around 8:30 a.m. ET today, and it is the key data point for the trading week. As it is we have seen the biggest four-day rally of 2024 after nothing but doom and gloom early last week. The VIX hit 18 yesterday as if last Monday never happened.

The July producer price index -- or PPI -- came out before the bell yesterday, rising a less than expected 0.1% on a month-over-month basis, igniting an early rally in equities. The bullish investor attitude persisted throughout the day with all the major indexes rising. The Nasdaq led the way with better than a 2.4% gain. The S&P 500 was up nearly 1.7%.

Futures are directionless early in premarket trading but that will change when July CPI comes out. Everything is pretty much on hold until that reading hits the wires and it is likely to drive discussion early here on the Daily Dairy.