August 27, 2024 | Catalysts Ahead

MARKETS

S&P 500: Up +8 points to 5625, VIX: 15.97

Asia: Japan +0.47%, China -0.24%, Hong Kong +0.43%

Europe: Euro Stoxx 50 +0.26%, FTSE +0.37%, DAX +0.52%

FX: USD (DXY) down 0.13%, EUR up 0.08%, GBP up 0.36%, JPY up 0.19%, CNY down 0.03%

Energy: WTI Crude down 1.64% to $76.16, Brent down 1.52% to $80.19

Cross markets: Terminal rate unch at 5.33, Implied rate cuts 2-years from terminal down ~3bp at 225bp, 5/10 yield spread +17bp

Treasuries: 2-year yields unch at 3.931%, 10-year yields up ~3bp at 3.844%, 30-year yields up ~4bp at 4.141%

WHAT WE'RE THINKING

Snapshot: US equities are mixed and off worst levels after yesterday’s mild pullback.??Semis bounce back ahead of NVDA earnings print tomorrow afternoon with analog/industrial names ADI, TXN, ON, MCHP and NXPI also higher.??PODD is the best performing stock in the S&P 500 (SPX) on earlier-than-expected FDA clearance for Omnipod 5.??Utilities and Energy give back some of yesterday’s advance, while downside in TSLA and AMZN weigh on Consumer Discretionary.??Treasury yields are mixed with curve steepening as the 2/10 inversion narrows to ~8bp.??The Dollar Index is lower with sterling the upside standout. Gold is little changed, WTI crude gives back some of its recent rally and copper trades to a ~6 week high.

• August consumer confidence came in ahead of consensus, while year-ahead inflation expectations dropped to 4.9%, its lowest levels since March ’20.??The survey’s labor market differential was also in focus with fewer respondents characterizing jobs as 'plentiful.'?
• The August?Richmond Fed index deteriorated further with consensus looking for MoM improvement.??FHFA house price index?for June was little changed, while the S&P Case-Shiller 20-city home price index ticked higher MoM.??
• The Treasury is issuing $69B of 2-year notes later today.??
• There’s no macro data scheduled for tomorrow with market participants looking forward to earnings reports from CRM, CRWD, HPQ, NTAP and NVDA after tomorrow’s close. Thursday brings weekly jobless claims, revised Q2 GDP pending home sales and earnings from ADSK, DELL, MRVL, while Friday brings core PCE inflation, Chicago manufacturing PMI and University of Michigan consumer sentiment.??
• China industrial profit growth improved to +4.1% in July from +3.6% in June, breaking a series of disappointing economic reports for the country.
• There’s earnings-driven outperformance for shares of HAIN and TCOM, while AMWD, HEI and SCSC trade lower after reporting.??Earnings reports after the close include results from BOX, JWN, PVH and S.

Rotation? The Nasdaq 100 (NDX) has underperformed other major US indices over the last six weeks as expectations for Fed rate cuts have driven a pro-cyclical bias.??Since July 10, the NDX has lost -5.28%, while the SPX is little changed and the Russell 2000 (RTY) has gained +7.35%.??The near-term performance differential is?important to identify, but it’s not yet a trend in our opinion.??The NDX has been the weakest of major US indices lately but was able to push above its post-payrolls (8/2) downside gap at 18890.??To us, the index looks ‘down but not out’ with the next hurdle at 20399 likely more difficult to clear.??And the RTY still needs to break above the cycle high at ~2265 with confirmation from cyclical cross markets like copper prices.??Copper futures formed a short-term bottom after retracing to the March breakout area near $400.??Copper futures now sit at $431 with technical resistance just ahead at $433.??In our opinion, the RTY needs to sustain levels north of 2265 and copper needs to clear $440 in order to confirm the beginning of durable and profitable rotation.

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Next: Aggregate Tech positioning is now mildly underweight going into NVDA’s earnings report tomorrow afternoon, DELL earnings/guidance Thursday afternoon and AVGO earnings next Thursday (9/5). The August Jobs Report on Friday 9/6 is the most important catalyst for the broad market, followed by AAPL’s iPhone launch on Monday (9/9), US CPI for August (9/11) and FOMC rate decision (Wednesday 9/18).??The current Fed funds rate of 5.30% remains ~200bp above the Taylor Rule-implied neutral rate of ~3.3% with other estimates closer to ~2.5%.??The Jobs Report on 9/6 will determine whether the Fed cuts rates by 25bp or 50bp.??Consensus is looking for August non-farm payrolls of +160,000 and an inline print could deliver a September cut of 50bp if July core PCE (this Friday) and August CPI (9/11) come inline at +0.2% MoM.?

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Pain trade: The sharp decline in realized equity volatility and wide open corporate buyback window during a period of relative illiquidity keep the pain trade skewed higher for the next two weeks.??This dynamic fades when the buyback window beings to close after 9/13 and when a seasonally difficult period begins.??

FACT OF THE DAY

The Newfoundland dog and Labrador Retriever were both bred in Newfoundland and Labrador, which is province in North-East Canada.??

JSC IN THE MEDIA

Fed more likely to cut 25bps: Andrew joins ‘Fast Money’ to talk signs of economic slowing, what to expect from the FOMC moving forward, and more. Watch on CNBC

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Small caps could be in for a revival: Small and mid-cap stocks usually outperform during a cyclical recovery, that may come into view once the Fed begins its easing cycle. ?However, not all factors point to an imminent cyclical recovery. ?Andrew discusses what is missing and what to look for. Read More on CNBC

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Fox Business News: Andrew joins Charles Payne on Making Money to discuss risks to the soft landing scenario and factors necessary to sustain the current bull market. Watch Video

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See more of JSC in the Media.

THIS DAY IN HISTORY

August 27, 1955: First copy of the Guinness Book of Records is bound. The book came about after Sir Hugh Beaver, who was the managing director of the Guiness Brewery at the time became involved in an argument over which was the fastest game bird in Europe, the golden plover or the red grouse. He thought the book would be a good way to help bar patrons settle trivia disputes. The book's title also provided a branding opportunity for the brewery. Btw, the top speed for a golden plover is ~60mph, while the top end for the red grouse is ~70mph.

CATALYST CALENDAR

Tomorrow: 1) Eurozone M3 money supply for July; 2) Earnings before the open: ANF, BBWI, CHWY, DCI, FL, KSS, SJM; 3) Earnings after the close: AFRM, APLD, COO, CRM, CRWD, FIVE, GEF, GES, HPQ, NTAP, NTNX, NVDA, OKTA, PAHC, PSTG, VEEV, VSCO

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Thursday: 1) Eurozone auto registrations for July; 2) Germany’s regional CPIs for August; 3) US Q2 GDP/PCE revisions; 4) US weekly jobless claims; 5) US pending home sales for July; 6) South Korea’s industrial production for July; 7) Japan’s Tokyo CPI for August; 8) Japan’s retail sales/industrial production for July; 9) Earnings before the open: AEO, BBY, BF’b, BURL, CPB, DG, GMS, OLLI, PLAB; 10) Earnings after the close: ADSK, DELL, GPS, LULU, MDB, MRVL, ULTA

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Friday: 1) US personal income/spending for July; 2) US PCE for July; 3) Germany’s unemployment for August; 4) Eurozone CPI for August; 5) India’s Q2 GDP; 6) Chicago PMI for August; 7) Michigan confidence survey for August; 8) China’s NBS PMIs for August

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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