Look What the 'Cat' Bonds Could Drag In
Hurricane Milton, still a category 5 storm at this hour, continues to traverse the Gulf of Mexico, taking aim at Florida's west coast. The storm, likely to make landfall by very late Wednesday or very early Thursday, is now expected to be a category 3 or category 4 storm by that time. A day or two ago, it was looking like a cat 2 or cat 3 by landfall. I am on the eastern coast of central Florida. This storm is so powerful that it is expected to make it across the peninsula as a hurricane and hit our coast as either a category 1 or category 2. A day ago, we were looking at a category 1.
So it is. We'll get up to 10 inches of rain, while the poor folks on the Gulf coast, who hopefully got themselves out of Dodge, will face up to 18 inches. Our utility provider has told us that we'll likely lose power, so no fears, gang ... if I don't write tomorrow. I am out much of next week anyway. I am a mile from the water, but Florida is flat, full of wetlands, and the sewers run on gravity, not pumps, at least not around here, so some flooding even here on the Space Coast would not surprise.
I think we are as ready as we can be. I am now too old to serve in the National Guard, so at least this time I only have to worry about my own home and those around me. We're sandbagged up. Actually, I use bags of mulch. There is sand for sandbags available for free at the public parks, but the wait is like five hours, and I have three homes to watch over, my own and the older widows on either side of me. They are our friends and watch out for us when we are in New York. Mulch is less expensive than sandbags if buying in bulk and more useful after the fact, as well.
We have put the storm shutters in place. We have enough water to last through a drought. The tubs are full. The canned foods have been stocked up on. Now, we wait. I hate to wait once I am as ready as I can get, but maybe the west coast will get lucky and then, in turn, so will we. Know what I hate more than waiting? I hate when my wife is nervous. We've been best pals since we were teenagers. She'll make herself physically ill later today, through nerves. That is what, through all times of trial, I hate most of all. Let's get to it, kids.
Catastrophic for Catastrophe Bonds?
I bet a few readers saw that piece on Catastrophe Bonds at Bloomberg, written by Gautam Naik on Tuesday. Catastrophe Bonds, for those who don't know, also known as "cat" bonds, are issued by insurers and reinsurers to provide protection against losses realized from the most severe natural disasters. Those investing in these bonds stand to profit handsomely if the worst doesn't happen. Those same investors, however, stand likely to get tagged badly if it does, as these bonds will be used as a financial resource as insurance claims mount.
Well, what had been an almost quiet hurricane season, erupted two weeks ago when Hurricane Helene tore through the Big Bend region of Florida and devastated the mountainous regions of western Georgia, South Carolina, and North Carolina, as well as parts of Tennessee, Virginia and other states.
Now comes Hurricane Milton that appears not to be weakening to the degree that those folks at the Weather Channel and Fox Weather were hoping. In 2022, the fallout from Hurricane Ian cost insurers about $60 billion. Most of the models for this storm alone are running estimates of up to $75 billion, with the most extreme models projecting losses of up to $150 billion. That's just Milton. I don't have data on Helene as that storm erased entire towns, but almost no households in those towns had flood insurance, as the southern Appalachian Mountains have never been known to flood.
I may sound like I am from another time and place, but there is always prayer. No, you can't pray for safety or for some awful outcome to pass you over but still land upon someone else, at least I don't think you can. What anyone can do, though, is pray for a best outcome, pray for strength and pray for the ability to persevere. If one must suffer, and I don't write this lightly, or carelessly, then prayer can aid in the ability to suffer as well as possible. Now, God bless.
Tuesday, and That 'Day One' Setup
I told you that I did not trust that "Day One" set-up on Monday as several "Day Ones" in a row now, have not worked as they used to, as once upon a time a tough day would have an impact upon sentiment. That mattered when price discovery was the function of an ongoing, two-sided open outcry auction. Humans are impacted by sentiment. Algorithms react to things like keywords and react at speeds humans could never imagine. Algorithms have no emotion and can act and react on a scale that humans also never could.
Therefore, some of our time-tested rules and practices are not aging as well as they might have. Fortunately, this same lack of human participation and increase in price discovery through electronic execution has led to a level of accuracy in technical analysis that many traders would have scoffed at back in my day. Technical analysis used to be considered witchcraft. Now, there is no denying that in many cases, it works very well.
Crude oil finally gave back some ground on Tuesday, struggling against a still strengthening U.S. dollar, though the light, sweet stuff has found a bid here in the early going on Wednesday morning. Treasury debt securities showed some slight weakness on Tuesday, as well. The U.S. Ten Year Note lost a basis point during the regular session and has gained it back overnight, still trading at a yield of 4.02%. The U.S. Two Year Note pays 3.97% this morning after going out at 3.98% on Tuesday afternoon, which was up two basis points.
Equity markets reacted, at least at the headline level, well to the Atlanta Fed's revision to its GDPNow model for the third quarter. Atlanta took that estimate all the way up to growth of 3.2% quarter over quarter at a seasonally adjusted annual rate from 2.5%. Upward tweaks to the model were made to such inputs as real personal consumption expenditures, real gross private investment, and real government spending. This model will be revised again later today after the Census Bureau finalizes its estimate for August Wholesale Inventories.
Marketplace and Semis
While the major headline level equity indexes performed well on Tuesday, the broader markets did not have an especially good day, The Nasdaq Composite tacked on a beefy 1.45%, while the S&P 500 gained 0.97%. However, mid- to small-cap stocks did not participate in any rally. The S&P 400 (midcaps) gained just 0.04% for the day, while the Russell 2000 gained 0.09% and the S&P 600 lost 0.09%.
Breadth was tricky. Ten of the 11 S&P sector exchange-traded funds shaded green on Tuesday with Technology (XLK) way out in front at +1.87%. Energy (XLE) was the only loser (finally), giving back 2.61%. Within tech, the Dow Jones US Semiconductor Index gained 2.86%, led by Intel (INTC) and Nvidia (NVDA) , both of whom were up more than 4% for the session.
All of the above smells terrific. Now, check this out. Winners beat losers by just a smidgen at the NYSE, but advancing volume took just a 42% share as aggregate trading volume across NYSE-listings contracted 6.7% on a day over day basis. That pretty much tells us nothing.
There's more where that came from. Losers beat winners at the Nasdaq by an 11 to 10 margin, but advancing volume took a 54.9% share, as aggregate trade across Nasdaq-listings increased 6.2% day over day. In all, the breadth on Tuesday was neutral and trading volume gave little clue to how much conviction, if any, was behind what transpired on Tuesday.
Go Nvidia!
As the shares of Nvidia continue to break out of that pennant formation that I have been beating you over the head with, some interesting news came out of the firm's AI Summit. Nvidia, on Tuesday, revealed its idea of the next phase of artificial intelligence. Of course, at the center of this progress will be Nvidia hardware and Nvidia software stacks. This will involve the buildout of full data centers housing 32,000 GPUs with liquid cooling, now being dubbed as "Blackwell AI Supercenter" platforms.
The company also introduced Nvidia NIM blueprints, which are the plans for an AI agent (known as James) that will serve as an avatar providing customer service for consumer-facing businesses. There will be industry and needs-specific new AI assistants for public sector services as well as for businesses like utilities and telecom. ServiceNow (NOW) is known to already be using Nvidia's NIMs.
The stock of Nvidia gained 4.05% on Thursday, and its dog and pony show was not the only reason. Reuters reported on Tuesday afternoon that AI startup and potential Nvidia competitor Cerebras Systems will likely call off its roadshow set for early next week as it is now seen postponing its IPO as it faces delays related to national security concerns connected to the investment of the UAE-based G42.
Can't Decide
Bloomberg News reported on Tuesday that JP Morgan (JPM) CEO Jamie Dimon had not decided on whether to endorse a presidential candidate or which candidate to endorse. Maybe the race is just too close to call. After all, it could be potentially damaging for Dimon and his company if he were to publicly back the losing racehorse.
More Boeing News
Boeing (BA) announced on Tuesday evening that it had withdrawn an offer to a rough 33,000 striking machinists. The union had asked for a 40% pay raise over four years and the return of a defined benefit pension plan. Boeing had countered with a proposed 30% raise plus a performance-based bonus.
Elsewhere, S&P Global Ratings has estimated that Boeing will burn through about $10 billion in cash for the full year 2024. The ongoing strike puts BA's recovery at greater risk than it already was. The ratings agency is said to be considering the possibility of cutting Boeing corporate debt to "junk" status. Somehow, this news does not surprise.
Keep On Rockin'
You kids watching Palantir Technologies (PLTR) ?
Remember that last week, I made the upper trendline of the Andrews Pitchfork my pivot and increased my target price to $48. Well, golly, that didn't take long ... the stock is already making an attempt on that trendline, having tacked on a nifty 6.58% on Tuesday. This is not yet an official target increase, but I am seeing the case for $51 based on the current chart.
Will PLTR head into a basing period of consolidation? It should. Does it have to? We have been in this name since it was trading with a $6 handle. Anything is possible. The Relative Strength Index is in overbought territory (again), while the daily Moving Average Convergence Divergence is once again bullishly postured.
Just Look...
At all of these Fed speakers!! It's like they came pouring out of the clown car at the circus.
Economics (All Times Eastern)
07:00 a.m. - MBA 30 Year Mortgage Rate (Weekly): Last 6.14%.
07:00 - MBA Mortgage Applications (Weekly): Last -1.3% w/w.
10:00 - Wholesale Inventories (Aug): Expecting 0.2% m/m, Last 0.3% m/m.
10:30 - Oil Inventories (Weekly): Last +3.889M.
10:30 - Gasoline Stocks (Weekly): Last +1.119M.
1:00 a.m. - Ten Year Note Auction: $39B.
The Fed (All Times Eastern)
09:15 - Speaker: Dallas Fed Pres. Lorie Logan.
10:30 - Speaker: Richmond Fed Pres. Tom Barkin.
10:45 - Speaker: Dallas Fed Pres. Lorie Logan.
11:00 - Speaker: Chicago Fed Pres. Austan Goolsbee.
11:00 - Speaker: New York Fed Pres. John Williams.
12:15 p.m. - Speaker: Richmond Fed Pres. Tom Barkin.
12:30 - Speaker: Federal Reserve Vice Chair Philip Jefferson.
2:00 - FOMC Minutes.
5:00 - Speaker: Boston Fed Pres. Susan Collins.
6:00 - Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (HELE) (1.04)
After the Close: (AZZ) (1.31)
At the time of publication, Guilfoyle was long INTC, NVDA, PLTR equity.
