The Market Got What It Wanted. So Why Did Nobody Care?
We had minor gains in the indexes Tuesday, with breadth at 53% positive. Opening strength was sold, and we drifted around for most of the day.
Nvidia ($NVDA) finally bounced after six down days and the semiconductor group ($SMH) led with a gain of 1.5%. Biotechnology returned to its highs with Moderna ($MRNA) leading the way.
Oil dropped about 4% on optimism around the Oman-mediated talks on the Strait of Hormuz, and interest rates fell nicely. Neither one motivated buyers much.
The Bond Rally Should Have Done More
The failure of lower oil and interest rates to generate more enthusiasm is troubling. It is a combination that has been missing all month, and it didn’t trigger a “risk on” reaction.
The reason is Jackson Hole. Kevin Warsh speaks Friday morning in his first major policy address as Fed Chair, and nobody wants to be positioned for lower rates two days before he opens his mouth. He has been deliberate about withholding forward guidance, which means the market has no idea what he will say about rising Treasury yields or the inflation fight. When a rate-friendly session fails to produce buying, the market is telling us there is a lack of trust.
Dick’s Raises a Question
One particularly ugly note was Dick’s Sporting Goods ($DKS), which dropped around 30% after cutting its full-year outlook.
Most of that is company-specific. The core Dick’s stores posted comparable sales up 4.9% with broad-based growth. The damage came from Foot Locker, which it acquired last year for more than $2 billion and which is now expected to lose money this year on a 3.6% comparable sales decline. Management pointed to weak footwear launches and heavy exposure to older models.
So this is largely an acquisition problem and a category problem rather than a broad consumer problem. But it does bring up the same question that Walmart ($WMT) raised last week about the strength of the consumer.
Two poor reports do not make a trend, but after Walmart posted its slowest sales growth in six years, we need to pay some attention to the issue.
My Game Plan
The action on Tuesday was mostly random positioning ahead of the Nvidia report Wednesday night. Nothing that happened Tuesday will matter when that event hits.
My positioning has not changed. Cash is high and I am working the shopping list rather than the market. The setups I want come out of whatever volatility the next 72 hours produce, between Nvidia Wednesday night and Warsh on Friday.
I am not going to try to guess at the outcome of either event.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
