Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Feb. 1, 2024. The Bottom Line segment of today’s podcast starts at (5:15) for listeners who want to skip ahead.
Update 0750 ET: Added a less pessimistic view on regional banks. See The Bottom Line, last paragraph.
State of Play
Stocks sold off yesterday after disappointing tech earnings and the Federal Reserve effectively dousing any hopes of interest rate cuts in the near future. The Nasdaq saw the worst of it, dropping by >2% — its worst trading day since October — as the S&P 500 declined by 1.5%. Both indexes are now on track for a losing week — the first time that has happened this year. Perhaps more disconcerting is potential trouble lurking in regional banks after New York Community Bancorp (NYCB 0.00%↑) was bludgeoned to the tune of a 38% drawdown after earnings.
As we look at our board of indicators at 0640, markets appear to want to rally however:
Stock index futures are pointing to a higher open, led by small caps encouragingly enough. The Russell 2000 is up 0.8%. Nasdaq +0.6%, S&P +0.3%;
Commodities are mixed. WTI crude oil is up 0.8% to trade around $76.50/barrel and natural gas is up 1.5%, but copper is down 1.2%. Gold is down 1% likely due to the newfound Fed hawkishness and what that does to support the US dollar;
Bonds are unchanged, weirdly enough. The 2-year yields 4.23% while the 10-year is actually moving lower, by 2 basis points to 3.94% (yields move inversely to prices).
Today’s Known Events
It’s Thursday so we get initial jobless claims at 0830. Economists who were surveyed expect 213,000 new claims, effectively the same as last week’s 214,000 and ahead of the four-week average of 202,000.
Another big day of earnings awaits. Honeywell (HON 0.00%↑), Altria (MO 0.00%↑), Royal Caribbean (RCL 0.00%↑), Peloton Interactive (PTON 0.00%↑), Ferrari (RACE 0.00%↑), Tractor Supply Co. (TSCO 0.00%↑), SiriusXM (SIRI 0.00%↑), Stanley Black & Decker (SWK 0.00%↑), Becton Dickinson (BDX 0.00%↑), and Canada Goose (GOOS 0.00%↑) are among the numerous names reporting before the open at 0930.
After the close at 1600 things get really interesting with half of the ‘Magnificent Six’ — Amazon (AMZN 0.00%↑), Apple (AAPL 0.00%↑), and Meta (META 0.00%↑) —reporting. Also Clorox (CLX 0.00%↑) and Skechers (SKX 0.00%↑), among others.
The Bottom Line©️
Can Meta, Apple, and Amazon rescue earnings season for tech? We won’t find out until after the close. The regional bank stuff is perhaps more worrying. The issue appears to be due to commercial real estate holdings and is already being felt as far away as Japan, where a lender named Aozora cautioned of the same issues. Commercial real estate has been a slow moving train wreck since Covid effectively put an end to office culture. These issues are not resolved. It stands to reason that we will be hearing more about this. Whether it causes another run on the banks like it did last spring is an open question that needs to be asked.
So you’re going to want to pay attention to these issues and see how regional bank stocks — there’s a convenient ticker, KRE 0.00%↑ — reacts. The newfound hawkishness on behalf of the Fed is certainly not going to help things. A lot of these commercial mortgages need to be refinanced, which is obviously not made any easier by higher interest rates.
Of course, there is also a chance this blows over. Former podcast guest Bob Elliott, who has been a very good authority on regional bank stocks, said as much on Twitter/X yesterday.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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New Trouble in Regional Banks; Amazon, Apple, Meta Earnings