Stocks are slipping as the US economy begins to show cracks

live8 updates

• Tuesday, June 4, 2024 at 10:45 am EDT

  Oil extends slide amid weak production data, concerns over oversupply

  Oil futures extended their slide on Tuesday as markets continued to digest OPEC+’s latest output decision, while weaker-than-expected production data raised concerns about the health of the US economy.

  West Texas Intermediate (CL=F) fell more than 1% to trade above $73 a barrel, while international benchmark Brent (BZ=F) fell 1% to above $77 a barrel.

  The decline in crude futures followed Monday’s decline after the Saudi-led oil bloc extended most of its output cuts until 2025, but will phase out additional and voluntary cuts starting in October this year. Analysts had expected those cuts to remain in the fourth quarter of this year.

  Traders are reluctant to buy a dip as the market is oversupplied and demand is expected to decline by 2025.

  “The U.S. economy also appears to be reeling as the Atlanta Fed Reserve posted its fifth consecutive downward estimate of GDP growth,” Dennis Kiesler, senior vice president at BOK Financial, said in a note on Tuesday.

  The latest ISM manufacturing report for May came in below expectations at 48.7. New orders of 45.4 were the weakest since May 2023, while production came in at the lowest level since February.

• 

  Tuesday, June 4, 2024 at 10:06 am EDT

  Employment fell to its lowest level in more than three years

  April job openings fell to their lowest level since February 2021 as the labor market showed further signs of recovery.

  New data from the Bureau of Labor Statistics There were 8.05 million job openings at the end of April released on Tuesday, down from 8.35 million job openings in March, which was revised lower from 8.48. Economists surveyed by Bloomberg had expected the report to show 8.35 million openings in April.

  According to the Job Opportunities and Labor Turnover Survey (JOLTS), 5.6 million people were hired this month, little changed from March.

  The hiring rate was unchanged from March at 3.6%. In Tuesday’s report, the exit rate, a sign of optimism among workers, held at 2.2%.

• 

  Tuesday, June 4, 2024 at 9:34 am EDT

  Stocks start off with a slump in the energy sector

  Stocks opened in the red on Tuesday amid heightened concerns about the health of the US economy following weaker-than-expected manufacturing data.

  Both the S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) fell about 0.3% after ending modest gains on Monday during a flat session for the three major gauges. The Dow Jones Industrial Average (^DJI) fell about 0.2% after losing more than 100 points in the previous session.

  The S&P 500 Energy Select ETF (XLE) led oil to a four-month low on Tuesday. Traders continued to evaluate OPEC+’s latest output cut plan amid worries about oversupply at the end of the year. The oil alliance plans to extend most of its output cuts through 2025, but will begin phasing in additional voluntary cuts starting in October.

  The latest data showed activity cooling across a range of measures, dampening expectations that US economic growth will accelerate for a second year in a row.

  The April jobs report late this morning could be another sign of how the economy is doing. The labor market update serves as a precursor to Friday’s key May jobs report.

• 

  Tuesday, June 4, 2024 at 6:07 am EDT

  Unsavory fast food commercials

  Fast-food stocks were cold.

  The Street has really gone sour with McDonald’s ( MCD ), Restaurant Brands ( QSR ), Yum! Brands ( YUM ), and several in recent months amid sticky inflation and new $5 price wars.

  In short, there is no catalyst to push the stock higher in the near term.

  Evercore ISI analyst David Palmer underscored this morning that he lowered his same-store sales estimates for the aforementioned names.

  I wanted to highlight two areas of interest from his statement:

  “U.S. drive-thru chains are experiencing weakness across most income groups, but the weakness is most pronounced among households earning less than $50,000/year. This cohort is most vulnerable to rising property prices and high interest rates. Finally, this consumer inflation backlog has hit 30%+ covid- Seasonal food inflation combined with high restaurant food costs (4 times more than home-cooked) create affordability problem A social media study on fast food pricing has added pressure, especially for McDonald’s.”

  and:

  “In the past, compelling value menus were often anchored by a single hero item — often viewed by consumers as a loss leader. These include the $1 double cheeseburger (McDonald’s 2003-2012), $1 any size soft drink (McDonald’s 2017-2020), $5 foot long ( Subway), a $5 mix-and-match (Dominos) and a $1.50 hot dog (Costco) — a $5 package would be enough to stabilize McDonald’s traffic. Would we do the trick at McDonald’s — a $1 billion national ad budget for McDonald’s Use the program?

• 

  Tuesday, June 4, 2024 at 5:53 am EDT

  Good point on Goldman’s stock

  I woke up to a 16-page research report on Goldman Sachs’ stock. Great train reading.

  Its team’s good point in stocks:

  “However, given the rise in valuations and the recent uptick in investor sentiment, stocks are likely to be disappointed. Stocks, so far, have weathered the delay in interest rate cuts, as growth-cyclical sectors have outperformed key markets on defensive policy, with economic activity (especially around the labor market) faltering. exhibiting any symptoms.”

• 

  Tuesday, June 4, 2024 at 5:47 am EDT

  Citi spent some time with Nvidia’s CFO

  While NVIDIA ( NVDA ) CEO Jensen Huang gets all the attention, his longtime CFO is also important to keep an eye on if you’re invested in the name.

  Colette Cress He has been Nvidia’s CFO for 10 years and is seen in Wall Street circles as one of the best in gaming.

  Siti got to spend time with her this week and came out with a note. I think what they said below (based on their meeting with Cress) about a little discussed demand driver for the chipmaker is interesting.

  “Demand for sovereign AI is strong in different parts of the world. In Europe, Nvidia is seeing some work being done in countries like France, Germany and Italy, with France leading the way. The Middle East is also an area of ​​heavy investment in AI. . . Not all investors are directly tied to governments, typically , sovereign AI customers have made it clear that their products are being used. Typically, companies are looking to build models based on their own characteristics.”

• 

  Tuesday, June 4, 2024 at 5:40 am EDT

  Stifel’s call on the markets

  I have no problem with making bold calls as long as the tacticians are really rooted.

  I think that’s what we’re getting from Stifel’s Barry Bannister this morning.

  Bannister says he expects a 10% correction in the S&P 500 to 4,750, which will occur between the second and third quarters.

  Why:

  • “Stick (and slightly higher) inflation in the second half of the year, starting early in 3Q24E.”

  • “Despite Slow Cyclical Economic Growth, No Fed Rate Cut in 2024.”

  • “The S&P 500 price-to-earnings ratio will fall by about 2 times (about 500 points) by the end of the third quarter.”

  Below is what Stifel CEO Ron Kruszewski recently told me about the Fed and the markets:

• 

  Tuesday, June 4, 2024 at 5:33 am EDT

  Bottom line at GameStop

  GameStop (GME) shares are flat early today after a 21% pop (103% gain from the open).

  Steve Sosnick from Interactive Brokers said it best to me via email on the move here:

  “It cannot be explained by normal, rational mechanisms.”

  Be careful chasing this one, folks.

  Some coverage of GameStop Mania this week from Yahoo Finance: