Macrosynthesis
TLDR
- Selloff send investors to safer assets
- U.S. labor market cools, fewer jobs open
- Canada cuts interest rates
- Casey's General Store Stock Pops on Earnings Beat
- Palantir, Dell to Join S&P 500 Index
- SMCI crash gains steam
- Roaring Kitty is back...again
- Etsy, American Airlines booted from S&P 500
September Selloff Sends Investors to Safe Haven Assets
Remember last week when we said September will be rough? Well, what a rocky start to the fall it has been. The S&P 500, Nasdaq 100, and Dow Jones all plummeted, marking their worst week of the year. The S&P 500 has now erased $2.2 trillion in market cap during the first week of September. Stocks fell even harder on Friday as concerns over a weakening labor market and tech selloffs intensified. The S&P 500 dropped 1.7%, the Nasdaq slid 2.5%, and major tech firms like Amazon and Alphabet saw significant losses. A weaker-than-expected August jobs report further fueled market anxiety. The S&P 500 was down nearly 4% for the week, while the Nasdaq 100 fell 5.5%. In response, investors moved to less risky assets such as the 20-year Treasury and utility stocks.
U.S Labor Market Slumps
The U.S. economy added 142K jobs in August 2024, below the anticipated 160K. Gains were seen in construction (34K), health care (31K), and government (24K), while manufacturing shed 24K jobs. Notably, since January 2023, only six months have experienced upward job revisions, compared to 13 months of downward revisions, many of which were revised twice. This trend is undermining market confidence in the reliability of labor market data.
- Full-time workers: -438K
- Part-time workers: +527K
Employment in other sectors remained steady. Job growth slowed compared to the 12-month average of 202K. Goldman Sachs announced layoffs, and Volkswagen reversed its no-layoff stance, hinting at possible plant closures in Germany. However, average hourly earnings for U.S. private nonfarm employees rose 0.4% to $35.21, surpassing forecasts. Nonsupervisory employees also saw a 0.4% wage increase. Year-over-year, wages grew by 3.8%, exceeding expectations. Experts such as the former Treasury Chief have noted that this jobs report makes the bet on whether the Federal Reserve cuts 25bp or 50bp a bit more complicated.
Likewise, the number of open jobs continues to fall and is now back to levels last seen in 2019 (shown in graph above). As open jobs fall, competition for jobs becomes more fierce, leading to lower wage growth which cools inflation.
Canada Cuts Again
The Bank of Canada reduced its interest rate to 4.25%, marking the third consecutive cut. Governor Tiff Macklem indicated further easing is likely if inflation continues to slow.
Consumer Staples Stocks Outperform S&P 500
The performance of the S&P 500 sectors last week were mixed, with only a few sectors experiencing gains. Consumer Staples led with an increase of +0.6%, followed by Real Estate with a modest gain of +0.2%. In contrast, most other sectors saw declines. Utilities fell by -0.5%, while Financials and Telecom dropped significantly by -3.2% and -5.1%, respectively. Other notable declines included Healthcare at -2.1%, Industrials at -4.4%, Information Technology at -7.1%, and Materials at -4.8%. The Energy sector also fell sharply by -5.6%, and Consumer Discretionary was down by -2.9%, reflecting broader weakness across the majority of sectors.
November Elections Creeping Closer, Harris Leads
We are less than two months away from election day. Harris currently leads Trump by nearly 3%. However, the race remains close, particularly in key swing states like Georgia and Arizona, where Harris has gained ground. Despite her slight national lead, Trump and Harris are still within two points of each other in seven swing states, making the election too close to call, with past polling errors adding uncertainty to the outcome.
As of Friday, Donald Trump's sentencing in the hush money case has been delayed until after the November 2024 election. Meanwhile, his legal team appealed the E. Jean Carroll verdict, arguing the inclusion of certain evidence was improper. Vice President Kamala Harris is preparing for this week’s debate, while Trump continues his campaign, addressing law enforcement in North Carolina and criticizing ongoing legal challenges.
Dollar Stores Illuminate Harsh Story
Dollar Tree and Dollar General's recent earnings reports highlight the increasing financial strain on low-income consumers. Dollar Tree's same-store sales grew by just 1.3%, while Dollar General saw a mere 0.5% rise, reflecting weaker-than-expected performance. Both companies attribute this to inflationary pressures, with low-income households cutting back on essential purchases due to rising costs for rent, utilities, and healthcare. Many of Dollar General’s core customers have maxed out their credit cards or anticipate missing bill payments, signaling heightened financial insecurity and a broader economic strain on lower-income segments. This is crucial for the overall economy, as lower-income consumers have the highest marginal propensity to consume, meaning they contribute significantly to overall consumption. Without a financially stable lower-income class, the entire economy faces increased risk.
The Week Ahead
This week, key economic releases include U.S. inflation data, along with export and import prices. The Euro Area will focus on an interest rate decision, while China reports foreign trade, CPI, PPI, and new yuan loans. Additionally, inflation rates are expected from Mexico, Brazil, Russia, and India.
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Natural Gas
+7.62% (1W Chg)
-22.62% (YoY Chg)
Gasoline
-9.44% (1W Chg)
-19.60% (1M Chg)
Steel
-5.83% (1W Chg)
-29.03% (YoY Chg)
Milk
+10.48% (1W Chg)
+22.55% (YoY Chg)
Company News
LevelFields AI Alert Highlights This Week
In recent events on LevelFields, CNFR announced the appointment of a new CEO, leading to an impressive 135% gain this week. Autohome Inc. revealed a stock buyback, resulting in a 6% increase. Meanwhile, Athira Pharma reported disappointing results in its Alzheimer’s trial, causing the stock to plummet by 78%.
Falling Far From the Dollar Tree
Dollar Tree's stock plummeted 22%, its worst daily decline since 2001, following a disappointing second-quarter earnings report. The company's earnings per share of $0.67 fell short of expectations, and full-year profit outlook was slashed by 20%. Management attributed the poor performance to a challenging economic environment. Dollar Tree's market capitalization dropped to $13.6 billion, a stark contrast to its nearly $40 billion peak in 2022, making it one of the worst-performing stocks on the S&P 500 this year.
C3.AI Misses Big
C3.ai stock dropped 8% following weaker-than-expected subscription revenue in its first-quarter fiscal 2025 report. Subscription revenue reached $73.5 million, falling 7% below estimates, while professional services outperformed. Despite CEO Tom Siebel highlighting 21% year-over-year growth, four firms lowered their price targets, with JPMorgan reducing theirs from $24 to $19. The market remains cautious, scrutinizing AI-related stocks amid fluctuating demand.
Casey's General Store Stock Pops on Earnings Beat
Casey’s General Stores exceeded earnings expectations in Q1 fiscal 2025, with $4.83 per share, beating estimates of $4.54. Revenues grew 5.9% year-over-year to $4.1 billion but missed expectations. Inside sales increased 7.6%, driven by prepared food and beverages, while the gross margin expanded to 41.7%. Despite rising operating expenses due to store expansions, EBITDA grew 9.1%. Casey’s forecasts continued growth, targeting 3-5% in same-store sales and 8% EBITDA growth for fiscal 2025.
PLTR and Dell to Join the S&P 500
Dell and Palantir stocks surged about 7% after being added to the S&P 500 index, replacing American Airlines and Etsy, respectively. Dell returns to the index after going private in 2013 and relisting in 2018. Palantir, public since 2020, has shown steady profit growth. Both companies’ inclusion highlights their strong market capitalization, with Palantir valued at $67 billion and Dell at $72 billion.
Roaring Kitty Meows, Teases Watchers
Roaring Kitty's return to Twitter after a two-month hiatus led to an 8.2% surge in GameStop (GME) stock, while his implied disinterest in Chewy caused a brief 3.7% drop in its stock price. His post, an edited image from Toy Story showing a toy with a dog’s face being dropped, was widely interpreted as a signal he’s moving away from Chewy. This return comes just as GameStop is set to release its earnings later this week, adding to the anticipation. Call buyers will likely be scooping up positions at Monday's open on a gamble of renewed interest.
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SMCI Stock Crash Accelerates Even More
Shares of server maker Super Micro Computer (SMCI) are now down -30%, following a short seller attack that took down many others before them. LevelFields' AI alert went out a few minutes after the scalding rebuke of SMCI's accounting practices rocked the stock. SMCI is down 68% from its all-time-high.
JP Morgan Downgrades SMCI stock
The Short Seller Scenario identifies these types of downside risks. On average, these reports have caused a -17% drop in the stock in the first day or two, following by a slow, painful bleed over the latter months as lawsuits and government investigations pile up. This is exactly what we're seeing with SMCI, and the downgrade is causing even more selling.
How do you use AI to trade stocks using short seller events?
The best way to trade bearish AI stock alerts is by buying stock option puts on the stock. Some of these puts increased 1,000% in value in just a day. It's also possible to short the stock, which involves borrowing shares and then replacing them at a lower cost via a margin account. Using the table view enables options traders to see how these events typically affect share prices, and to choose the best expiration dates and exit points.
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Upcoming Earnings:
Monday: Oracle (ORCL)
Tuesday: Dave and Busters (PLAY), GameStop (GME)
Wednesday: Oxford Industries (OXM)
Thursday: Kroger (KR), Signet Jewelers (SIG), Adobe (ADBE)
Friday: RH (RH)