Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, Sept. 4. The Bottom Line segment of today’s podcast starts at (4:09) and Stocks on the Contrarian Radar at (7:00) for listeners who want to skip ahead.
State of Play
Stocks got beaten up yesterday. In fact, it was the worst day for major US indexes since the Aug. 5 debacle. As we eye our board of indicators for signs of direction at 0645, things are a bit mixed:
Stock index futures are down again, but not as precipitously as yesterday. Small caps and tech are continuing their downward trend, with the Russell 2000 and Nasdaq both down 0.7%. S&P 500 futures are down 0.4%;
Commodities appear to have stopped the bleeding for now, potentially a good sign. WTI crude oil is up 0.5% to trade around $70.50/barrel. Copper is unchanged;
Cryptos are moving lower after managing to hold up most of yesterday. Bitcoin is down 4% to trade around $56,500;
Bonds are seeing a few bids but the yield curve remains inverted, barely. The 2-year yield is down 5 basis points to 3.84% whilst the 10-year yield is down 2bps to 3.82% (yields move inversely to prices).
Today’s Known Events
Some earnings to kick things off:
Dollar Tree (DLTR 0.00%↑) missed top- and bottom-line estimates and appears to have lowered guidance. The stock is getting trounced, down 6% in the pre-market. This of course follows an earnings disaster from fellow bargain outlet Dollar General (DG 0.00%↑) last week;
Hormel Foods (HRL 0.00%↑) earnings were mixed and that stock is moving lower in the pre-market;
Dick’s Sporting Goods DKS 0.00%↑ is also due before the open;
After the close at 1600 we’ll hear from C3.ai (AI 0.00%↑), Hewlett Packard Enterprise (HPE 0.00%↑), and Casey’s General Stores (CASY 0.00%↑), among others.
The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS, is out at 1000. Economists expect 8.1 million (just about) job openings, a drop from the 8.18 million recorded last month. The quits levels were a little less than 3.3 million last month, corresponding to 2.1% of the workforce, a slight drop from the month previous. There unfortunately isn’t an economist estimate for that.
The Bottom Line
The news from Dollar Tree is certainly not good. It would appear the lower end of the US consuming public is seeing some hard times. Fortunately this does not appear to have affected the upper echelon — all those folks buying expensive gadgets, clothes, and trips (apparently to the consternation of Europeans living in or near tourist centers). As we’ve said before, as long as employment holds up so too should this segment consumer spending.
The question is if employment holds up. Manufacturing employment improved in July, according to yesterday’s ISM PMIs. That was just a survey however. More will be revealed in today’s JOLTS, tomorrow’s initial jobless claims and Friday’s non-farm payrolls.
For now we are left pondering the health of the stock market, investor risk appetite, and what this all means. Seeing how there was no real catalyst for all this selling, it stands to reason that it could reverse before too long - but our upside may be limited heading into these reports from the labor market.
Stocks on the Contrarian Radar©️
At risk of sounding like a broken record, the AI chip names have taken on water lately to the point where they may (may!) present a buying opportunity. On top of everything else, Nvidia (NVDA 0.00%↑) is apparently being investigated by the Department of Justice on antitrust grounds. As you can see, the damage to NVDA has been pretty acute over the past week, with the stock giving up close to 20%.
Of course, if you zoom out a bit the whole thing is a lot less ugly. Year-to-date, NVDA is still up more than 2x, trouncing the S&P benchmark:
We’ve spoken before about the ‘uncoupling’ of other AI chip stocks from Nvidia. Looking at the last five days of trading, a quintet of these, namely AMD (AMD 0.00%↑), Broadcom (AVGO 0.00%↑), Marvell (MRVL 0.00%↑), Qualcomm (QCOM 0.00%↑), and Taiwan Semiconductor (TSM 0.00%↑) are still tracking NVDA, but all have outperformed:
Nice win for all you relative value arbitrageurs out there. Where our ‘undiscovered’ AI chip names are concerned, here too a selection of these are beating Nvidia over the last week:
One of these, Photronics (PLAB 0.00%↑) continues to behave like it is almost completely uncoupled. One possible explanation is that PLAB reported positive earnings in the middle of all this. Speaking of earnings, Broadcom reports tomorrow…
Where the uncoupling is concerned, this all begs the question if this trend could revert to form again? Will leave that to somebody else for now.
Housekeeping
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JOLTS, Some Earnings, Stock Sell-Off