September 5, 2024

After Tuesday’s downside disaster to start the week, the market tried to do better in the morning, but the current negativity took over in the afternoon and things ended lower again, except for the Dow which eked out a small late afternoon gain.

‍

In fact, that index was down by 90 points at 3pm when bargain hunters stepped in and led by gains in BA, GS, IBM, MCD and UNH, it was able to do better and ended higher by 38 to 40,924.

‍

The S&P was down by 24 at the same time and also improved from that level to cut its closing loss to 9 at 5520. Once again, some of the former large technology leaders such as AAPL, which has done really poorly this week, along with NVDA and MSFT, the three largest stocks in the index, were all lower along with the energy group as oil prices fell under $70 after all of the “experts” were saying that the price would be much higher due to the old “major geopolitical risks” situation.

‍

The Nasdaq did poorly once again due to the negative influence of the tech stocks and ended down 52 to 17,084 while the Russell 2000 Index of small stocks drifted 4 points lower to 2145.

‍

Meanwhile the VIX loves this rally and gained up to 21.32 as far out of the money calls as high as 100, would you believe it, continue to attract buyers and to me this is a great opportunity for next Wednesday morning to sell and collect the premium here.

‍

The market’s latest pullback came as a government report showed the JOLTS report fell unexpectedly in July to 7.68 million, the lowest since January 2021, a sign that hiring could cool in the coming months.

‍

Openings have fallen steadily this year, from nearly 8.8 million in January. But overall, the report was mixed, with hiring having risen last month.

‍

The employment market is being closely watched by investors and the Federal Reserve as a gauge of the economy’s strength, as traders are anticipating that the Fed will start cutting its benchmark interest rate at its meeting later in September.

‍

The central bank raised rates to a two-decade high in an effort to cool inflation. The rate of inflation has been steadily easing under the weight of the higher rates, while the broader economy has remained relatively strong. The Fed’s goal was to tame inflation without stalling the economy into a recession. A weakening jobs market could raise concerns about slower economic growth ahead, but it could also mean less inflation pressure.

‍

Shares of U.S. Steel sank 17.5% after the Biden administration signaled that it is open to formally blocking the company’s acquisition by Nippon Steel of Japan.

‍

Several other reports this week will help give a clearer picture of the economy for the Fed and investors.

‍

The ISM will release its services sector index for August today and this came in 51.5, slightly better than expected and the 19th straight higher month.

‍

Then we get the big one on Friday at 8:30am for which the estimate is 155,000 jobs, up from 114,000 in July and the unemployment rate edged lower to 4.2% from 4.3%. The report’s strength, or weakness, will likely influence the Fed’s plans for how it trims its benchmark interest rate. ADP released their estimate this morning and I will not honor them by repeating their usually incorrect number.

‍

Traders are forecasting the Fed will cut its benchmark rate by 1% by the end of 2024. Such a move would require it to cut the rate by more than the traditional quarter of a percentage point at one of its meetings in the next few months.

‍

DLTR joined its compatriot DG with a similar decline of 22% for the biggest drop among S&P stocks after the discount retailer slashed its full-year earnings forecast. HRL fell 6% after the maker of Spam trimmed its revenue forecast for the year.

‍

Department store operator JWM lipped by 0.2% as members of the Nordstrom family offered to take the company private for $3.76 billion cash, months after first expressing interest in a buyout.

‍

In the bond market, the yield on the 10-year Treasury fell to 3.76% from 3.83% late Tuesday. That is down 4.70% in late April, a significant move for the bond market. The yield on the 2-year Treasury, which more closely tracks potential action from the Fed, fell to 3.76% from 3.87%.

‍

The 10-year Treasury and 2-year Treasury are at their least inverted levels in more than two years. An inversion occurs when the shorter duration yield is higher than the longer duration yield. It has historically signaled a recession, though the current inversion has stood for more than two years amid a growing economy.

‍

Earnings season is quieting down now with the following: yesterday – ZS, PD, ASAN, DLTR, DKS lower while GTLB was higher; today - CASY, CPRT lower and LE higher; tonight - AVGO, DOCU; Friday – BIG.

‍

Economic reports will see: yesterday - July trade deficit was $78.8 billion, July JOLTS job openings survey came in at 7.68 million which was the lowest since January 2021, August factory orders were higher by 5% and Fed Beige Book which showed that economic activity grew slightly in 3 out of the 12 Fed districts; today – weekly jobless claims were slightly lower at 227,000, ISM Services index report for August was 51.5; Friday – the big one, August non-farm payroll survey with estimates of 155,000 and the unemployment rate down to 4.2%.