Low Volume

- NYSE volume 4% above its one-month average.

- NASDAQ volume 6.09B shares, 15% below its one-month average.

Breadth

S&P 500 Sectors 

Nasdaq 100 Heat Map

NASD Advance-Decline Intraday vs SPY

I am about an hour from my office with a dead car battery!

Unfortunately, I won’t be returning today.

No trades today.

Back around 1 p.m.

At 10:46 a.m.:

Large-Cap % Advancers

Large-Cap % Decliners

At 10:40 a.m.:

Breadth

Sectors

Heat Map

The most active premarket exchange-traded funds as of 8:34 a.m. ET:

Upside:

-OSTX +61% (Phase 2b results for OST-HER2 in treating pediatric-designated, recurrent lung metastatic osteosarcoma demonstrates primary endpoint of 12-month Event Free Survival (EFS) for OST-HER2- treated patients (33.3%) was statistically significant)

-VMAR +42% (Files Patent Application for Proprietary Battery Encryption System)

-MASS +21% (prelim earnings)

-QBTS +18% (quantum stocks higher following MSFT announcement of Quantum-Ready Program in blog post)

-QMCO +13% (quantum stocks higher following MSFT announcement of Quantum-Ready Program in blog post)

-RPID +12% (prelim revenue)

-RR +12% (earnings)

-VCIG +11% (secures Exclusive Distributorship for Military-Grade AI-Powered Cybersecurity Solution)

-COMP +10% (raises Q4 guidance)

-BECN +9.3% (QXO Proposes to acquire Beacon Roofing Supply for $124.25/shr cash)

-RGTI +9.2% (quantum stocks higher following MSFT announcement of Quantum-Ready Program in blog post)

-CNDT +8.3% (awarded $92M contract by Alaska to enhance Medicaid Program Delivery Systems)

-CNTX +6.1% (first patient dosed in Phase 1 Clinical Trial of CTIM-76; anticipates sharing initial data for CTIM-76 Phase 1 trial in 1H26)

-TEM +4.2% (announces national launch of FDA-Approved xT CDx Test)

-PLUG +3.8% (announces deal with Allied Green Ammonia for a Mega 3 GW Electrolyzer System)

-C +3.6% (earnings, guidance)

-NEO +3.6% (affirms FY24, provides initial FY25 guidance)

-WFC +3.4% (earnings, guidance)

-BLK +3.2% (earnings)

-BK +3.0% (earnings, guidance)

-AMPY +2.9% (announces combination with Juniper Capital’s Upstream Rocky Mountain Portfolio Companies)

-SOFI +2.1% (William Blair Initiates SOFI with Outperform)

-GS +2.0% (earnings)

Downside:

-NMHI -59% (CFO resigns)

-AZTR -29% (prices $1.5M public offering of common stock)

-KROS -20% (TROPOS trial is being terminated early based on the ongoing safety review due to new observations)

-VCEL -12% (earnings, guidance)

-CVGW -7.1% (earnings)

-LASR -6.2% (prelim revenue)

-GENI -3.4% (affirms FY24; prices 17.6M share secondary offering at $8.50/shr)

Premarket percentage movers at 8:42 a.m. ET:

From Peter Boockvar:

Yen gets an Ueda lift and Gilts get some relief

I will be a bit late with my CPI rundown as I'll be on CNBC right at 8:30am this morning. With long bonds now pretty oversold with the relative strength index on TLT down to just 27, I wouldn't be surprised if we got a bounce post CPI release.

TLT

The yen is having its best day in almost a month vs the US dollar ahead of the BoJ meeting next week and after Governor Kazuo Ueda spoke today to regional bank executives and said "There was a lot of positive talk on the wage outlook" when he spoke with bank branch managers last week. He also said they will increase rates if the improvement continues with economic growth and price gains. This follows the comments from the deputy governor yesterday which hinted at a rate hike. JGB yields continued higher too with the 40 yr yield in particular up 3 bps to 2.79%, the highest for a 2nd day since this maturity was first issued in 2007.

2 day Yen chart

UK gilt yields are falling after a rough stretch, and helping to lift other European sovereign bonds, and comes after the UK CPI figure came in just under expectations. Headline CPI was up 2.5% y/o/y, one tenth below the estimate while the core rate gain of 3.2% was two tenths less than anticipated helped by slowing in services inflation which grew by 4.4% y/o/y, down from 5% in November and 4 tenths less than forecasted. The main reason for the drop in service prices were declines in air fares and hotel prices which tend to be volatile month to month. Tobacco prices fell too and was also a factor. Wholesale price gains, both input and output charges, were as expected.

After rising by 21 bps over the past 7 trading days, the 10 yr gilt yield is lower by 8 bps today at 4.81% and UK inflation breakevens are falling too in response, with the 10 yr lower by 3.4 bps to 3.61%. On Monday when it closed at 3.67% it was the highest since last June.

10 yr Gilt Yield

10 yr UK Inflation Breakeven

Germany's economy contracted by .2% in 2024 after shrinking by .3% in 2023 and that was just the 2nd time since 1950 that we've seen two years in a row of recession. We all know the challenges they face so this just quantifies it.

Maybe reflecting the pull forward of shipments ahead of the holidays immediately post election with the hangover in December, the Cass Freight Index said shipments in December fell 3.1% m/o/m after a 2.8% gain in November. The y/o/y drop was 6.5%, the biggest decline since January 2024. Pricing though was up as the Inferred Freight Rate rose 3.3% y/o/y after a drop of 3.1% in November, the first gain in two years. After dropping by 14% in 2023 and another 7% in 2024, Cass believes "this index will remain positive y/o/y in January and is headed for gains in 2025."

By the way, the Dry Van per mile rate that I watch every day closed yesterday at just off the highest level since February 2023. Capacity continues to come out of this trucking market.

Dry Van Per Mile Rate

* Beware of "asset gatherers" who reduce the complex investment equation to simple and untrue narratives...

I generally believe in Warren Buffett's dictum that "one should criticize by category and praise by individual."

But sometimes the pablum spoken on the financial networks is simply too inane to ignore.

Yesterday on CNBC I heard Josh Brown say that neither a rise in inflation nor higher interest rates should impact stocks or the domestic economy.

I am not trying to pick a fight but to say I was taken aback would be an understatement.

This fatuous observation simplifies and ignores history and so many other fundamental issues. Most specifically it dispels all dividend discount models, which are fundamental to the valuation of equities. (The risk-free rate of return is the core of models and is the foundation of all models. Interest rates are also a key factor in the calculation of the equity risk premium).

It also is profoundly untrue and runs counter to all economic teachings and knowledge that there is no relationship of interest rates to economic growth. (The determination of economic growth and (the impact on) corporate profits are also critical to determining the value of equities).

More importantly (and I can't say this more forcefully) his statements are symptomatic of the general lack of value and apparently poor qualifications of some of the "talking heads" in the business media who so many retail investors view and depend on.

Next thing we will hear is that we should ignore the interest rate rise as the Russell Index is poised for a +40% return...

This table is a valuable resource for momentum-based short-term traders:

I will be out most of the morning (I have a quick research meeting out of the area that I want to attend) — returning about 1 p.m.

From JPMorgan:

US: Futs are higher pre-mkt led by small-caps with the rally strengthening after the cooler than expected UK CPI print. Bond yields are down 1-2bps as USD is being offered. All Mag7 names are higher, ex-NVDA. Banks are seeing a pre-mkt bid ahead of earnings releases. In cmdty space, Energy and Metals are leading the complex higher. Today’s focus is on CPI/Bank Earnings but keep an eye on the Beige Book release.

and...

EQUITY AND MACRO NARRATIVE: As we prep for today, the SPX has fallen ~4.1% from its all-time, set on Dec 6, 2024; SPW -4.8%, NDX -4.0%, NDXW -4.0%, RTY -7.9%. This occurred with the yield curve bear steepening; the 10Y yield move from 4.15% to 4.77% (yesterday, a 52-week high). While it does appear that bond yields have overshot their fundamentals, today’s CPI is the catalyst and would take bond bids following yesterday’s PPI print as evidence for this, despite that bid lacking durability in the trading session.

My colleague Jack Atherton on yesterday’s Mag7 moves, “Market rolling into the close ahead of CPI tomorrow 0830aET, led by Mag7 (-1.7% today). It’s only Tuesday but this week has felt eerily quiet given we’re on the cusp of tech earnings (JPM tomorrow, TSM 1/16, NFLX 1/21)… both on the desk and in terms of client inbounds. Into earnings, feels like traders are happy to “wait and see” with the macro backdrop making any earnings / guidance wobbles hard to defend. Rates the primary driver of price action at the moment and there is a LOT of moving parts that tech investors + myself don’t really have a view on (CPI tomorrow, multiple Fed updates, Trump inauguration, China/TikTok, Bessent confirmation hearing, Tariffs noise). Additionally, tech investors are generally coming off a very good year so likely leaning more defensively... valuations are not that easy (for Mag7 or for the market overall)… Mag7 is possibly facing the first round of EPS downgrades in a few years through earnings (FX, depreciation, equity investments).”

CPI SCENARIO ANALYSIS – updated with Rates color from David Nadle

Feroli’s CPI preview is here. For CPI he sees Headline MoM printing +0.4% (0.44% unrounded) and Core MoM printing +0.3% (+0.28% unrounded), both numbers are above the Street. This equates to 3.0% YoY for Headline and 3.3% YoY for Core.

The following scenario analysis is NOT A PRODUCT OF JPM RESEARCH, this is a trading desk view from JPM US Market Intelligence. This month we focus on Core MoM outcomes and 1-days SPX moves.

· [5.0%] Above 0.30%. The first tail outcome with this outcome stemming from strong consumption and a potential move higher in housing prices. SPX loses 1% - 2%.

· [30.0%] Between 0.23% - 0.30%. This hawkish outcome likely comes to fruition if Core Goods deflation flips to being inflationary and/or loss of disinflation momentum from housing. SPX loses 75bps – 1.25%.

· [40.0%] Between 0.17% - 0.23%. The base case scenario. SPX gains 25bps – 1%.

· [22.5%] Between 0.10% - 0.17%. This dovish outcome is likely achieved via a combination of cooler home inflation and an increase in the deflationary impulse from Core Goods. SPX gains 1% – 1.5%.

· [2.5%] Below 0.10%. Similar to the previous bullet point, but you also likely see a reversal in categories experiencing recent gains such as Transportation. SPX gains 1.75% – 2.50%.

· WHAT ARE OPTIONS PRICING? Options that expire on Friday are pricing ~1.6% move.

· RATES COLOR (David Nadle) – Since NFP intermediate LHS vols have richened vs the rest of the surface while ULC has sunk. With the market pricing no fed action in H1 ULC continues to offer strong carry and slide, assuming that the market will not press a further selloff in front whites on the back of strong data. We have seen buying if 5y tails across the expiry surface both outright and vs RHS, mostly as straddles switches. Locally 5y realized/implied ratios still appear cheap and as 5s will function as a pivot point on the curve given how much pricing has been taken out of the whites. Realized vol has come down materially outside of Tier 1 data releases, making long gamma positions challenging to hold. Skew has continued to rotate towards receivers on the LHS, accompanied with a broader richening in VoV across shorter tails (last week’s strong NFP print has re-opened the upside of the distribution). We have reduced our long vol position as we have turned bearish on the forward path of realized vol.

o RATES BREAKEVENS:

o SFRH5: 2.5bp

o SFRH6: 9.875bp

o SFRH7: 9.50bp

o FV: 9.25bp

o 5y: 9.00bp

o TY: 8.125bp

o 10y: 7.375bp

o US: 6.75bp

o 30y: 5.75bp

o *the 1d terminal breakeven (premium/dv01) for a straddle struck at 3pm today, expiring at 3pm Wednesday.

Bonus — Here are some great links:

False, Starts, Fails and Shakeouts

Homebuilders and Regional Banks Rally, Biotech Falls

Is the Long Bond Signaling a 6.5% Yield?

More Mega-Cap Dominance?

Martin Luther King Day Is Generally...

The S&P Short Range Oscillator moved closer to neutral last night at -1.05% vs -3.96%.