Something's Russell-ing Around in the Market
Let's tackle the June Russell Reconstitution, the NFL's multi-billion dollar fumble, some macro letdowns and ... Chewy.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
You've made it. It's Friday. But it's not just any Friday, it's the late June Russell Reconstitution Friday. Typically, on this day, we get the heaviest trading volume for any single day of any year. Much of that volume will come late in the day, very late in the day, as in on, or near, the close at the New York Stock Exchange and Nasdaq.
For those of us who trade and invest for a living, we know that equity markets will likely be very liquid later on. That's good and also not so good, as there is also a chance that certain stocks will end up on the wrong side of some dislocation. The pressure will be huge this afternoon for brokers and advisers who work for commission. These individuals have to have a good day. They will likely be overwhelmed late in the regular session, and they cannot wilt.
Not at work today? Well, that wouldn't be good for those employed at broker-dealers, especially smaller broker-dealers. If the boss gave you the busiest day of the year off, well then, I guess we know who's on the potential layoff list then, don't we? On Wall Street, there's always a potential layoff list. All hands will be on deck for this afternoon's festivities. Yes, even the rich guys. Especially the rich guys. The Hamptons can wait.
Who's Ready for Some Football?
The NFL may not be. The most popular professional sports league in the country was slapped with a rough $4.7 billion in damages in a Los Angeles court trial on Thursday. Under federal law, the judgement over anticompetitive practices connected to the league's Sunday Ticket broadcast package, stands to be tripled to about $14 billion.
It took the jury less than a full day of deliberation to come back with a verdict and left some legal professionals wondering why the NFL went to trial rather than pursue a negotiated settlement. The claim central to the case, was that the league and DirectTV had conspired to raise the price of subscription for fans wishing to watch "out of market" games, forcing these viewers to pay for games not involving their team or teams.
Jurors awarded $96.9 million in damages for commercial subscribers and $4.61 billion for residential customers. Damages are subject to tripling under federal law, which is one reason why antitrust cases are usually settled without trial. The league had argued that exclusive broadcast deals are protected by the Sports Broadcasting Act and that this act granted an antitrust exemption for the sale of "all or any part of'' those rights. The NFL's commissioner Roger Goodell testified that the subscription fee was determined by DirecTV and that the NFL had nothing to do with that. Now, $14 billlion is a lot of dough. For anyone. In 2022, according to Statista, the NFL in aggregate, generated approximately $18.6 billion in revenue.
Macro Fumble
Yet again, the macro got messy on Thursday. The main event for the day was the Census Bureau's release of May Durable Goods Orders. This got ugly. Sure, the headline print of 0.1% monthly growth vs. expectations for a 0.1% contraction looked OK, but as everyone knows, when it comes to Durable Goods Orders, the headline number is usually the least important. Once transportation purchases are omitted, the result still landed at -0.1%, but that was vs. expectations for 0.2% growth. Once defense purchases are omitted, the monthly print moves down to -0.2% from -0.5% in April and also below projections.
Finally, the most important item, core capital goods orders, which excludes air and defense purchases, hit the tape at a month-over-month 0.6% contraction. Wall Street had been looking for something close to 0.1% growth. Why this number is so important is that economists consider core capital goods orders to be a proxy for national business investment. This key measure of economic health has now printed in a state of monthly contraction for either of the past 12 months.
As a result, the Atlanta Fed revised its GDPNow model for the second quarter down to growth of 2.7% (q/q, seasonally adjusted annual rate) from growth of 3%. Atlanta will revise that model again later on Friday after adjusting for May personal income and May personal spending. Remember that Atlanta is by far the optimistic outlier among the second-quarter gross domestic product models run by regional Fed districts. The other three all revise their models weekly. New York came into this week below 2%, while both St. Louis and Cleveland came into this week below 1%. St. Louis has run the most accurate model among the four, at least so far this year.
About the GDP ...
There was some other macro data released on Thursday. First-time jobless claims printed at 233,000, remaining somewhat elevated from what had been the norm for a fourth consecutive week. The moving four-week average for initial claims for state level benefits now stands at 236,000. Continuing Claims, which runs a week behind initial claims, increased for an eighth consecutive week to 1.839 million. There are now more people receiving continued unemployment benefits in this country than at any point since November 2021.
The Bureau of Economic Analysis also revised their estimate for first-quarter GDP for the second and final time. The final print showed GDP growth of 1.4% (q/q, SAAR). Final Q1 gross domestic income printed at growth of 1.3% (q/q, SAAR) which was nice to see, for those who don't read me often, this is a drum that I have been banging on for quite some time. As a matter of fact, this is a drum that I banged on quite often last year.
Understand that GDP and GDI are both measures of national output, both measure the same economic activity from a different perspective, which in theory should produce the same result. One is a check upon the other. For Q1 2024, the two ran close together as they are supposed to. When they do not run together, economists are supposed to average the two, as neither is considered preeminent.
The St. Louis Fed, in a piece written by Michael T. Owyang in 2016 even suggests "In the end, however, it may be prudent to use both series (or perhaps a measurement combining both) to measure output." You and I both know that's not what happened in 2023, when GDP for the year printed at growth of 2.5% and GDI for the year hit the tape at growth of 0.4%. Funny, how the financial media and politically biased economists only spoke of GDP and even scoffed at economists that had warned that the economy was not far from entering into recession in 2023.
The fact is that by GDI, the economy barely grew at all in 2023 and the average of the two was 1.45%. You never heard about growth of 0.4% or that average of the two. You only heard about growth of 2.5%, which was by far the most optimistic number the media had available.
Marketplace: Equity (Mildly) Positive
Equity markets were mildly positive in a broad sense on Thursday. The S&P 500 gained less than five points or 0.09% on the day, while the Nasdaq 100 gained 0.19%. The much broader Nasdaq Composite managed to tack on 0.3%. Small to mid-cap indices outperformed for the session with the Russell 2000 up 1%, but the S&P 600 up just 0.41%.
That divergence may have been the result of traders trying to get ahead of this afternoon's rebalancing of Russell indexes. Then again, the Russell 1000 and Russell 3000 were only up small. On the other side of the coin, both the Dow Transports and Philly Semiconductors gave up about half of 1% for the day. Interestingly, while the semis traded lower again, the Dow Jones U.S. Software Index gained 1.03% on Thursday led by Zscaler ZS, Palantir PLTR and MicroStrategy MSTR. Those three stocks were up 5.75%, 4.65% and 4.64% respectively.
Breadth
Seven of the 11 S&P Sector SPDR exchange-traded funds closed out Thursday's session in the green, led by the real estate investment trusts XLRE and Discretionaries XLY, while the Staples XLP led the way into the red for the losers. Winners beat losers by a rough three to two at the New York Stock Exchange and by about seven to four at the Nasdaq. Advancing volume took a 57.8% share of composite NYSE-listed trade and a 67.4% share of Nasdaq-listed trade.
In aggregate, trading volume increased by a small measure for listings across both exchanges as well as for membership across both the S&P 500 and Nasdaq Composite. Normally, we would take that as a positive read, but given Friday's expected forced price discovery, I do think we will wait until next week before we start taking anything away from recent prices.
In fact, with last week's triple witching and S&P tech rebalancing, this week's Russell rebalancing and next week's holiday, we may not really know how the dust settles until the week of July 8. Just in time for earnings season. JP Morgan JPM, Wells Fargo WFC and Citigroup C will kick off Q2 earnings season that Friday, or two weeks from today.
Chew on This
On Wednesday, Chewy CHWY closed at $29.14. On Thursday, Chewy closed at $29.05, down 0.31%. But between 1 p.m. ET and 1:13 ET (13 minutes) on Thursday, CHWY traded in a range spanning from $27.82 to $39.10. Why? Well, Chewy was founded by GameStop GME CEO Ryan Cohen and "Roaring Kitty'' posted a picture of a cartoon dog to his X (Twitter) account. In case you're wondering, 17% of the CHWY float is held in short positions. The meme crowd? More likely algorithms written to front-run the meme crowd.
Chewy did also disclose earlier in the day on Thursday, that the stock had struck a deal to repurchase $500 million worth of equity directly from BC Partners, which is fully incremental to the company's recently implemented $500 million repurchase program. Kooky.
Nike With Donohue for Long Run?
Question: How long does Nike NKE stick with CEO John Donohue? The stock is down more than 14% overnight after reporting on Thursday evening. At $80.50, NKE is now down 20.3% since Donohue took the job in mid-January 2020. The S&P 500 is up 67.9% over that time frame.
Economics (All Times Eastern)
08:30 - Personal Income (May): Expecting 0.4% m/m, Last 0.3% m/m.
08:30 - Consumer Spending (May): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 - PCE Price Index (May): Expecting 0.0% m/m, Last 0.3% m/m.
08:30 - Core PCE Price Index (May): Expecting 0.1% m/m, Last 0.2% m/m.
08:30 - PCE Price Index (May): Expecting 2.6% y/y, Last 2.7% y/y.
08:30 - Core PCE Price Index (May): Expecting 2.6% y/y, Last 2.8% y/y.
09:45 - Chicago PMI (Jun): Expecting 40.0, Last 35.4.
10:00 - U of M Consumer Sentiment (Jun-F): Flashed 65.8.
10:00 - U of M Consumer Sentiment (Jun-F): Flashed 3.3%.
10:00 - U of M Consumer Sentiment (Jun-F): Flashed 3.1%.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 588
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 485.
The Fed (All Times Eastern)
06:00 - Speaker: Richmond Fed Pres. Tom Barkin.
12:00 - Speaker: Reserve Board Gov. Michelle Bowman.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication Guilfoyle was long PLTR, WFC equity.
