Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, Aug. 8. The Bottom Line segment of today’s podcast starts at (4:36), with ‘Stocks on the Contrarian Radar’ commencing at (7:47) for listeners who want to skip ahead.
State of Play
Stocks bounced around yesterday, rallying big at the open then dropping into the close. As we look at our board of indicators for signs of direction at 0630, the mood seems to be one of caution:
Stock index futures are pointing to a lower open, but the movement is less dramatic than it has been all week. Small caps are seeing the worst of it with the Russell 2000 down 0.4%. S&P 500 futures are down 0.2% with the Nasdaq effectively flat;
Bonds are seeing a few bids for the first time in days, with the yield on the 2-year down 5 basis points to 3.95% and the 10-year down 4bps to 3.92%. So the yield curve right close to un-inverting again, like it did Monday;
Cryptos aren’t moving with Bitcoin sitting on $57,400;
Commodities aren’t doing anything either. Copper is unchanged. WTI crude oil essentially flat trading around $75/barrel.
Today’s Known Events
Initial jobless claims are out at 0830. This would normally be a blah event but after the freakout on Friday in reaction to non-farm payrolls, it’s safe to say that the labor market is front and center in investors’ minds. Therefore this suddenly because a very important datapoint.
Economists who were surveyed expect 241,000 claims, down a bit from the 249,000 recorded last week but still ahead of the four-week average of 238,000.
There are few earnings of note. Eli Lilly (LLY 0.00%↑), Datadog (DDOG 0.00%↑), Krispy Kreme (DNUT 0.00%↑), and Papa John’s (PZZA 0.00%↑) are out before the open at 0930. Papa John’s being a talking point on the Stocks on The Contrarian Radar a few weeks ago when it was deemed not cheap enough.
After the close at 1600 we’ll hear from Soundhound (SOUN 0.00%↑), Unity (U 0.00%↑), The Trade Desk (TTD 0.00%↑), Paramount Global (PARA 0.00%↑), and Expedia (EXPE 0.00%↑), among others.
The Bottom Line©️
Told you we weren’t out of the woods yet! The weird thing is none of yesterday’s moves were precipitated by anything that can rightfully be deemed a catalyst. Instead this can be considered a textbook bear market rally, characterized by gains in the pre-market, which sometimes carry over into the regular session, followed by selling into the close. We were up so big yesterday morning that it looked like more than one of these headfakes. Safe to say now that that conclusion was erroneous.
Jamie Dimon of JPMorgan (JPM 0.00%↑) told CNBC he is expecting a mild recession with chances around 40% the US escapes via a soft landing. As the CEO of the US’ largest lender, Dimon has as good a gauge of the economy as anybody so his comments are worth listening to. He pointed out that his comments were effectively unchanged from earlier in the year.
Fair enough. Just remember there is no such thing as a mild recession when you’re going through it. That label is affixed after the fact. When you’re going through it is painful and there are almost always unexpected events that upend the order of certain things.
Stocks on the Contrarian Radar
How about Disney (DIS 0.00%↑), trading back near the lows of the year after earnings yesterday. DIS now trades at 18x forward earnings and <2x forward sales, well below historical averages. The earnings were actually mixed, with positive results from streaming. It was just the parks that were bad. Well that and some comments about possibly having to pay $5 billion more for the rest of Hulu, which would be a big outlay in cash.
Still, that’s a worst-case scenario. The whole thing will be decided in arbitration. Some may have concerns about Disney’s content and it’s true what they did to Star Wars is an abomination. The Contrarian cannot in good faith reward this with buying the stock, but it may very well be cheap. These are some of the strongest brands in the world, even assuming they end up completely destroying Star Wars (in fairness not all Star Wars content has been bad. The first season of the Mandalorian was great and Andor was awesome). Hard to see how DIS doesn’t have at least some value at these prices, right?
Housekeeping
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All Eyes on Jobless Claims