The Everything Rally, The Fed Pivot, AMD Relights AI Trade, Nvidia's Record Day
What happened Wednesday was as entertaining as it was amazing. However, early August is not the same as late July. It gets rough from here. Oh, and get ready for Apple and Amazon!
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We all know about month-end mark-ups. The activity that sometimes does not materialize is usually greater at quarter's end.
What happened on Wednesday was as entertaining as it was amazing. Helene Meisler wrote something in her Top Stocks nightly missive last night: "But it was also the end of the month and funny things happen on the final trading day of the month." This "end of the month" activity came after a positive earnings release by chip designer Advanced Micro Devices AMD relit the flame under the "generative AI trade" — if even for a day.
The flame burnt so strong that it rallied Microsoft MSFT off of the overnight depths (>-8%) of a severe AI-related selloff late Tuesday to where that name "only" gave up 1.08% on Wednesday. I did, as I said I would in my TheStreet Pro piece on Wednesday, and used the regular session rally in MSFT to right size that position.
It must have felt super special to portfolio managers who likely had some subpar performance coming into the month's final day to be "gifted" an FOMC statement and press conference intended to set the public up for easier monetary policy ahead — scheduled just two hours and 90 minutes (respectively) before July's closing prices would cross the tape.
It must have felt like a gift on top of a gift that going into the session, the BOJ had tightened monetary policy, despite that economy being in a state of contraction. That put the whammy on the U.S. dollar, greasing the skids for a rally across equities, U.S. Treasuries, and many commodities.
The 'Take 'Em' Boys...
We heard their horses from a couple of miles out. The cloud of churned-up dust visible above their mounted charge gave away their approach. They had come before. They'll come again. For the "Take 'Em" Boys rode on Wednesday. They'll be back again. Don't really know when. Could be today. Might not be.
Amazon AMZN and Apple AAPL report tonight. Meta META seemed to please investors overnight, though other tech stocks certainly did not. And we still have the almost certainly inaccurate monthly jobs report Friday.
That said, early August is not the same as late July. Not by a long shot. It gets rough from here. So, I'm told. So, I've lived.
Since New Year's Day 2000, so this century/millennium, there have been 24 Augusts. Fourteen of those Augusts have for the S&P 500, closed in the green, but have posted a mean return of exactly 0%. That's right, August is on average, a flat month since Y2K. Compare that to July, where the mean return is now 1.51%, and to September, where the mean return is -1.65%.
August is usually tough, and September is usually tougher. So, button up. Buttercup.
Isn't anyone on your side? Of course. This is an election year. The Fed never cuts this close to a national election. This year they are expected to cut rates less than seven weeks ahead of that election. That will be unusual. Of course, the economy, specifically labor markets could be in a more overtly difficult place by then. Ah, such is life. Uncertain as it is.
The Pivot
Does anyone remember "not held" orders? Sales traders acting on the behalf of mutual or hedge funds would send their order to their chosen floor trader with the instructions "not held." What it meant was that the floor trader was not to be held to the tape while the order was in his or her possession.
That floor trader was being given permission to try to improve upon price if possible, and if it did not work out, at least in theory, would not be forced to give the account better prices that appeared on the tape during that time frame. Of course, we all know that portfolio managers, sales traders, floor traders and specialists were all alpha types, and terrific battles were fought over disagreements in price.
Well, what the FOMC did on Wednesday, was create for themselves, through the official statement and Chair Powell's press conference, a not held order. A pivot was created that would set up a September rate cut, but with enough wiggle room to stand pat on rates, as the committee has for some time now.
There were six changes made to the wording of the July statement relative to the June statement. For those unaware, FOMC policy statements are usually "cut and paste" jobs with minimal changes made from one statement to the next. Sometimes just one sentence is changed. On Wednesday, "Job gains have moderated" replaced "job gains have remained strong" and "the unemployment rate has moved up but remains low" replaced "the unemployment rate has remained low."
Beyond that... inflation remains "somewhat elevated" as opposed to "elevated" and "modest" further progress on inflation becomes "some" further progress. Finally, "the Committee remains highly attentive to inflation risks" in June became "the Committee is attentive to the risks to both sides of its dual mandate."
Well, shazam, there it is. The Fed gave themselves permission to act or not act to labor market damage if it thinks it should regardless of making further progress in the fight against consumer-level inflation. We all considered it so, but the Fed made it official.
The meeting that will culminate with a decision on September 18 is certainly a live meeting. This makes anything said at Jackson Hole in three weeks mere fodder for an algorithmic market response. Oh, joy.
So, It Was...
That the yield curve collapsed upon itself. The yield for the U.S. 10-Year Note fell from 4.15% early Wednesday morning to 4.03% late in the day, which was its lowest payout since March. The U.S. 2-Year Note paid 4.39% going into the FOMC statement and paid just 4.26% a short while later. It was the "take 'em" boys. They were here too.
All of these yields are up a little overnight, by the way, as the euphoric drugs wear off and the junkies wake up.
So, It Was...
That the S&P 500 rallied 1.58% on Wednesday to close out July up just 1.1%. So, it was that the Nasdaq Composite rallied 2.64% on Wednesday to close out the month still down 0.8%. So, it was that the Russell 2000 rallied 0.51% on Wednesday to close out the month up a whopping 10.1%.
Wanna know what's crazy? The Philadelphia Semiconductor Index absolutely soared a stunning 7.01% on Wednesday (led by Nvidia NVDA, Broadcom AVGO and ASML Holdings ASML), to close out the month, still down 4.37% (led by Micron MU, Lam Research LRCX and Arm Holdings ARM). By the way, ARM is down another 9% overnight in response to earnings.
Oh, This Rally Was Broad
Indeed, it was. Probably not as awesome-full it should have been. Honestly. Seven of the 11 S&P sector SPDR ETFs closed in the green on Wednesday, obviously led by Technology XLK. That fund was sup 4.22% for the day, with five other funds up at least 1%, but not more than 1.54%. Of the four funds that closed in the red, none closed down more than 0.39%, but the bottom three rungs on the daily performance tables were taken by defensive sectors. Health Care XLV was at the very bottom.
Winners beat losers by roughly 7 to 4 at the NYSE and by about 8 to 5 at the Nasdaq. Advancing volume took a 58.7% share of composite NYSE-listed trade on aggregate trading volume that was up 20.4% day over day. Advancing volume took a 69.7% share of composite
Nasdaq-listed trade on aggregate trading volume that increased 13.1% day over day. All very good and on a normal day, probably reflective of professional money being put to work.
That said, if this was just for mark-up purposes and the Fed's dog-and-pony show just a prop, not only will Treasury securities give something back today, but equities very likely will as well. All bets are off late in the day, though, going to those heavyweight earnings as we are.
Stats
ADP reported private sector job creation of 122 thousand positions for July, well below the 166 thousand or so that had been expected. Very notably, small businesses, historically the nation's largest employers in aggregate, experienced a job contraction not creation of 22 thousand positions for the month.
Nvidia added $329 billion to its market cap on Wednesday, which is an all-time single-day record for any publicly listed U.S. company. Yes, this did come after a market-cap loss of $193 billion the day prior, but it's still a record.
Neither of those days would likely have moved as far as they did if human traders still controlled a meaningful percentage of aggregate trade. Just my two cents.
Nvidia now holds the three largest single day market-cap gains in history, and they have all been set in 2024. Nvidia also holds the sixth and tenth largest single-day gains ever. Apple, Alphabet GOOGL and Meta are other names mentioned in the top 10.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 239K, Last 235K.
08:30 - Continuing Claims (Weekly): Last 1.851M.
08:30 - Non-Farm Productivity (Q2-adv): Expecting 1.5% q/q, Last 0.2% q/q.
08:30 - Unit Labor Costs (Q2-adv): Expecting 1.6% q/q, Last 4.0% q/q.
09:45 - S&P Global US Manufacturing PMI: Flashed 49.5.
10:00 - ISM Manufacturing Index (July): Expecting 48.9, Last 48.5.
10:00 - Construction Spending (June): Expecting 0.2% m/m, Last -0.1% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +22B cf.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: APD (3.04), BDX (3.31), BIIB (4.02), MRNA (-3.36), REGN (10.61), SO (0.93), W (0.47)
After the Close: AMZN (1.02), AAPL (1.33), SQ (0.84), CE (2.74), DKNG (-0.02), INTC (0.10)
At the time of publication, Guilfoyle was long SO, AMZN, MSFT and NVDA equity.
