Sea of Red, Nikkei Crushed, Buffett Sells Apple, Nvidia Did What? Calling Jerome
Reverse carry trade? Well, that's at least how it started. Did you not think that bills must come due? Did you not think the bell would toll ultimately for thee?
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You can look to the left and look to the right
But you will live in danger tonight
When the enemy comes he will never be heard
He'll blow your mind and not say a word
Blinding lights-flashing colors
Sleepless nights
If the man with the power
Can't keep it out of control
Some heads are gonna roll
Some heads are gonna roll
Some heads are gonna roll
Some heads are gonna roll
- "Some Heads Are Gonna Roll" B. Halligan, Jr. (Judas Priest), 1984
The Week of the Damned
Fear is but for the wicked, so let the wicked tremble before us.
It was the week that the "annual" third-quarter correction struck with a vengeance. Yes, my merry band, a vengeance rarely seen since all things pure and elegant had been cast out in favor of the elaborate, the complex, the immoral, and the indecent. Whoa be to those who harm the many, while seeking an easier, more controlling path from point A to point B. Did you not think that bills must come due? Did you not think the bell would toll ultimately for thee?
The weakening economy has become apparent. For only the foolish and the simple ever thought it was that strong to begin with. The BLS July Employment Survey showed a little too much leg. The folks caught on. Smoke and mirrors have stopped working for now. Still, they did try. They dressed up a loss of 914,000 jobs in July as a net gain of 114,000, or 85,000 if you account for revisions to May and June.
It wasn't just jobs. The Master of Puppets was revealed for the joker he really is, as the ADP Employment Report, the Chicago PMI, weekly initial jobless claims, the ISM Manufacturing PMI, Construction Spending and Factory Orders all did their best impression of a series of peas rolling off of a table.
It Was More Than That...
If it were only as simple as an economy that has really skated on much thinner ice than the financial media and politically biased economists have admitted to or even acknowledged since early 2022.
The Mag Seven? Really not so bad. Tesla TSLA, Amazon AMZN and Alphabet GOOGL have really kind of disappointed investors. That said, Meta Platforms META impressed, Microsoft MSFT was consistent, and Apple AAPL didn't belly flop. Still, this was not what investors have become accustomed to. There was no super-duper, holy, moly moment among those six that got the republic fired up.
All six of those names create plenty of free cash. They won't hurt too bad, but nearly all have admitted to and projected increased spending on their individual generative AI futures. At least that should be good for Nvidia NVDA, the last of the seven to report. We'll have to wait another three weeks for Nvidia, but at least we know that Jensen "The Fonz" Huang never lets us down. We can mess with the unwashed 493 until then. Right, guys? Guys?
What? No Way, Dude....
I was reading it on Saturday but couldn't believe my eyes. Nvidia did what?
Apparently, "last minute" design flaws are now forcing Nvidia to delay the launch of its latest artificial intelligence-capable chips designed on the Blackwell GPU architecture by about three months. This "fly in the ointment" will impact Meta Platforms, Alphabet, and Microsoft.
Oh, is that all? I thought you were going to say something absolutely crazy, like Berkshire Hathaway's BRK.A BRK.B Warren Buffett had gone and sold almost half of his giant stake in Apple or something.
Next, you'll try to tell me that U.S. markets will get hit by a reverse carry trade now that the Bank of Japan is tightening monetary policy during an ongoing recession as the FOMC preps the runway for easier policy that may be a day late and a dollar short. Whomp, whomp.
Reverse carry trade? Well, that's at least how it started. I think now it may just be a "beat the snot" out of Japan party and everyone else is catching at least a part of that beating. The Nikkei 225 is down a frightening 12.4% as we work our way through the zero-dark hours. Monday, August 5 has been the worst single day for the Nikkei 225 since the crash of October 19, 1987.
Let's hope U.S. equities do not even approach what transpired here that day. I worked that day right in front of where CNBC is now located on the NYSE trading floor, under the podium in front of Post 9. I never need to do that again. Equities are lower across the rest of Asia and are opening lower in Europe. Nasdaq futures at last glance were down close to 5%, while S&P futures were down almost 3%.
I felt a little stupid creating some cash late last week. It would appear that I should have created more cash than I did. Utilities, as a defensive sector, seem to be doing their job overnight. Defense-related (not defensive) stocks seem to be doing well also as tensions between Iran and Israel continue to rise.
The Angry Stick
Oh, the "Ugly Stick" was out and about last week. He's not just ugly, he's angry too. Kind of looks like he has made an appointment for early this week too. For joy, for joy.
Come, oh mighty stick of the uglies. I wait for you in the dark. Ka-Bar vs. Ka-Bar. Battle axe vs. Battle axe. Fear you? I have prepared for you since before I was even an idea. Bring your very best. The laughing man you heard was your first and last warning.
Calling Jerome
I have seen the U.S. 10-Year Note yielding as little as 3.71% early on Monday morning, down from 3.79% late Friday as traders are said to be trying to price in some kind of emergency rate cut by the Federal Reserve within one week.
Officially, futures markets trading in Chicago are pricing in a 96% probability for 50 basis points worth of short-term rate cuts by September 18 and a 98% likelihood for 75 basis point worth of rate cuts by November 7.
The Sea of Red
- The S&P 500 gave up 1.84% on Friday to close the week down 2.06%.
- The Nasdaq Composite gave up 2.43% on Friday to close the week down 3.35%.
- The Nasdaq 100 gave up 2.38% on Friday to close the week down 3.06%.
- The Russell 2000 gave up 3.52% on Friday to close the week down 6.67%.
- The S&P Small Cap 600 gave up 3.36% on Friday to close the week down 5.53%.
- The S&P Mid Cap 400 gave up 2.8% on Friday to close the week down 4.13%.
- The Dow Transports gave up 2.72% on Friday to close the week down 3.38%.
- The Philly Semiconductor Index gave up 5.18% on Friday to close the week down 9.71%.
- The KBW Bank Index gave up 4.32% on Friday to close the week down 7.76%.
Rotation into smaller caps? LOL. Semiconductors? Ugly. Banks? Ugly. Correction? The Nasdaq Composite and Nasdaq 100 are both now more than 10% off of their most recent highs. The Philadelphia Semiconductor Index is now off about 18%.
Olympus Has Fallen
Readers will see that the S&P 500, under intense pressure, had held the 50-day simple moving average (SMA) all week, until finally cracking on Friday. When it broke, it shattered.
The daily Moving Average Convergence Divergence (MACD) for the S&P 500 is something out of a cheap horror movie. Svengoolie, anyone?
Pop Goes the Weasel Cuz the Weasel Goes Pop!
Mmm, the chart of the Nasdaq Composite is kind of like the chart of the S&P 500, only worse. This index cracked the 50-day SMA last Wednesday.
Just look at that freakish daily MACD. Jeekies. 200-day SMAs sing the beckoning song of the sirens.
SMEAC
I've got your five-paragraph order right here:
1) Understand... Everything is for a reason.
2) Identify... Avenues of approach, threats, targets of opportunity.
3) Adapt... to the changed and fluid environment. Become what the moment requires.
4) Overcome... Find a way, persevere.
5) Carry On... The mission is eternal.
Get Basic
- Who has the pricing power?
- Is there a dominant story?
- Where is geographic dominance?
- Seek out strong management. Shun failure.
- Where is the true value? Where is the value only now, or even not yet inexpensive?
Economics (All Times Eastern)
09:45 - S&P Global Services PMI (July-F): Flashed 56.0.
10:00 - ISM Manufacturing Index (Dec): Expecting 51.1, Last 48.8.
The Fed (All Times Eastern)
17:00 - Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BNTX (-2.04), TSN (0.67)
After the Close: BCC (2.69), CSX (0.48), FANG (4.50), PLTR (0.08), SPG (2.94)
At the time of publication, Guilfoyle was long AMZN, MSFT, BRK.B and PLTR equity.
