Mid-Morning Look

Monday, August 05, 2024

U.S. stocks opened the day with broad declines in a global market sell off overnight that started with Japan’s Nikkei posting a -12.4% decline, adding to last Friday’s decline falling 4,451.28 points at 31,458.42. The Nikkei 225 dropped 5.8% on Friday, making this its worst two-day decline ever. Its worst single-day rout was a plunge of 3,836 points, or 14.9%, on Oct. 20, 1987. The Nasdaq this morning fell as much as 6% and the S&P over 4% but prices have since rebounded on “buying the dip” and then again further after 10:00 following a better-than-expected ISM Services PMI economic report (though major averages still down very sharp). Note the S&P 500 fell roughly 9.7% from its peak on July 16, its largest drawdown off an all-time high since 2022. Weakness was broad based, but tech getting hit the hardest early behind weakness in NVDA and AAPL after news stories (see below). Recession fears have gripped investor concerns in recent days after the ISM data showed 8-month lows last week and jobs data disappointed, weighing on financials, energy, materials, industrials, airlines, and consumer discretionary as consumer spending fears rise. Not many places to high today with oil, gold, bitcoin also down sharp with U.S. stocks. Overall, investors are worried the Fed has waited too long to cut rates and will need to play catch-up when it meets in September.

One of the major reasons being cited for the extended decline from last week (as mentioned a few times over the last week) is the continued “unwind” of the Japanese yen “carry trade” in which investors borrow Japanese Yen at low/near-zero interest rates then convert Japanese Yen to another currency with a higher interest rate, such as the U.S. Dollar. Investors then take U.S. Dollars and invests in stocks, bonds, etc. which have a higher yield/return than their cost of borrowing the Japanese Yen. This trade “unwinds” if investors begin selling the assets and buying back Yen to repay the original loans. That trade had been in place for a while (think about the strength in tech in 2024) but the unwind began after the dollar moved above 162 vs. yen two weeks ago and has reversed to lows around 142 today as the Bank of Japan raised rates and the FOMC continues to push rate cuts out down the lone.

Bespoke Investor with lots of interesting stats/nuggets this morning: 1) “Today is set to be $SPY‘s 20th Gap down of 3%+ in its history.” 2) “The QQQ hasn’t closed below its 200-DMA in 351 trading days dating back to March 2023. It’s set to open below its 200-DMA this morning. Would end the 4th longest streak since the ETF began trading in ’99”. 3) “The SPX fell 1.8% on Friday, its 11th daily decline >1% this year”.

Other key headlines: U.S. Treasury yield curve un-inverted for the first time since July 2022 (758 days) this morning as the U.S. 2-year yield (hit 3.67%) moved below 10-year (hit 3.68%) as concerns grew that the U.S. economy is heading into a downturn (recession). The CBOE Volatility Index (VIX) hit highs of 65.73, up over 180% before paring gains (was around 12-13 level on July 16^th) after S&P futures (Spuz) hit overnight lows of 5,120, down over 4% pre mkt (first time above the 50 level since April 2020).

• S&P Global July services PMI at 55 vs 55.3 last month and S&P Global July final composite PMI at 54.3 (vs flash 55.0).

• TSN +3%; shares rose after Q3 revenue and profit topped estimates amid a rebound for its meat products and also benefits from lower grain prices reducing costs.
• TWKS +25%; agreed to be taken private by Apax Partners LP in a deal valued at $1.75 billion. Thoughtworks has agreed to a price of $4.40 a share, a premium of 30% over its closing price on Friday, https://tinyurl.com/3twyddfc

• BNTX -5%; Q2 net loss of 807.8 million euros ($885 million), compared to a loss of 190.4 million a year earlier and saw a 23% drop in quarterly revenue to 128.7 million euros, mainly due to lower sales of its COVID-19 vaccines; said it is aiming for its first oncology launch in 2026; reiterates year rev outlook.
• COIN -10%; tumbled as Bitcoin prices fell -18%, adding to a 13% drop last week as prices hit $51,000 (off $70K just 2-weeks ago), the worst since the period when the FTX exchange imploded. The weakness in the digital token comes amid a broader selloff in global stock markets and taking down CLSK, ETH, HUT, IREN, MARA, MTSR, RIOT.
• MRNA -5%; downgraded to Sector Perform from Outperform and cut tgt to $90 from $125 citing an uncertain outlook for both RSV and COVID.
• NVDA -7%; shares dropped after a report in The Information said design flaws could cause a delay of three months or more in the launch of Nvidia’s upcoming artificial intelligence chips. The setback could affect customers such as Meta, Google, MSFT who have collectively ordered tens of billions of dollars’ worth of chips. https://tinyurl.com/4fbejvs7