Welcome to the final quarter of 2024!

Markets are poised for a potentially volatile day as investors wrestle with the idea of whether the recent gains are sustainable or just setting up a classic “double top” pattern. After yesterday’s impressive rally that pushed major indexes to new highs, questions remain: will the market have enough momentum to push higher, or is the bull run on shaky ground? Let’s dive into today’s developments and see how the action might play out.

Morning Highlights

CVS Under Pressure

CVS Health (CVS) is in the spotlight again as it explores a potential breakup to unlock shareholder value. The news comes on the heels of pressure from Glenview Capital Management, which is pushing for significant changes at the struggling healthcare giant. CVS shares are up about 2% premarket, but the real question is whether splitting up the business—especially with its beleaguered retail arm—will create enough value to satisfy investors. Given the ongoing pressures in the healthcare and retail pharmacy sectors (just look at Walgreens’ stock), the outcome is far from certain.

Fed’s Powell Cools the Rate Cut Fever

Federal Reserve Chair Jerome Powell signaled yesterday that while more rate cuts are likely, the pace won’t be as aggressive as some investors had hoped (but just as Phil had predicted). His comments doused the prospect of a 50-basis point cut in November, driving yields higher and causing a brief market wobble before stocks rallied late in the day as the Dollar bounced off the floor – heading toward’s Phil’s predicted “weak bounce” line at 101.20. The Fed seems content to play it slow, but with crucial jobs and inflation data on the horizon, any shift in economic indicators could change the game. As Powell said, “We are not on any preset course.” Translation: Anything can happen.

Port Strike Escalates

Dockworkers on the East and Gulf coasts have officially walked off the job, threatening to snarl U.S. supply chains ahead of the critical holiday season. A prolonged strike could exacerbate inflation, something Powell surely doesn’t want to see as the Fed tries to tame rising prices. For now, the strike’s impact has yet to hit the market in full, but retailers and manufacturers are already scrambling to find workarounds, but what workarounds are there to the Atlantic Ocean? Expect disruptions in the weeks to come if this isn’t resolved quickly.

Markets This Morning

• Dow Futures: -0.2%
• S&P 500 Futures: +0.1%
• Nasdaq Futures: +0.3%
• Crude Oil: -0.5% to $67.83
• Gold: +0.5% to $2,671.70
• Bitcoin: +0.7% to $63,943

Key Economic Data

• 9:45 AM: PMI Manufacturing Final
• 10:00 AM: ISM Manufacturing Index (consensus: 47.7%)
• 10:00 AM: JOLTS Job Openings (expected: 7.67 million)
• 10:00 AM: Construction Spending

As investors digest Powell’s cautious comments and prepare for this week’s economic reports, they’ll also be eyeing the ISM Manufacturing Index, which has been stuck in contraction territory. A weak reading today could signal further economic softening, providing more fuel for the “double top” narrative.

Tempting the Double Top?

Monday’s strong close gave bulls hope for a continued rally, but with Powell’s cautious tone and looming economic data, there are plenty of reasons for hesitation. The term “double top” has started to float around—a technical formation that suggests the market may be peaking before a sharp pullback. Will this rally have legs, or is it setting us up for disappointment?

Historically, these kinds of surges in the fourth quarter can burn out quickly, particularly if economic data fails to impress. With investors chasing new highs, the risk of a selloff increases if the data doesn’t align with market expectations.

Sectors to Watch

• Energy: Oil prices remain depressed despite geopolitical tensions in the Middle East. Israel’s ground raids in Lebanon have escalated, but supply disruptions seem unlikely for now.
• Healthcare: CVS is in focus, but keep an eye on other healthcare providers as consolidation talks continue across the sector.
• Technology: Nasdaq is eyeing new highs, but the tech sector could face challenges if Powell’s gradual rate cuts weigh on growth stocks.

Hurricane Helene Watch

As of this morning, over 2 million customers were still without electricity across multiple states. 

• Energy Infrastructure Disruptions:
  • Offshore oil production: 25% of US Gulf of Mexico production (441,923 b/d) shut in
  • Offshore natural gas production: 20% of Gulf production (363 MMcf/d) shut in
  • Several major ports closed, including Port Tampa Bay and Port Canaveral
  • Nuclear power plants in the storm’s path are operating normally, with some exceptions
• Supply Chain Disruptions:
  • Major port closures affecting shipping and logistics operations
  • Cruise schedules impacted
  • Road closures and flooding hampering delivery of goods and materials
  • Dry bulk shipping market anticipating potential short-term dip in demand
• Economic Impact:
  • Potential loss of $181.7 billion to GDP if three named storms hit the US
  • Total economic output from recovery activities could reach $372.2 billion

• Players Likely to Suffer:
  • Utility companies: Florida Power & Light, Tampa Electric, Alabama Power, Georgia Power, Dominion Energy
  • Oil and gas companies with Gulf operations: BP, Chevron, Equinor, Shell
  • Insurance companies with significant exposure in the affected states
  • Shipping and logistics companies operating in the Southeast
  • Tourism and hospitality industries, particularly in Florida and coastal areas

• Potential Beneficiaries:
  • Construction and Repair Services: 
    • Home Depot (HD)
    • Lowe’s Companies (LOW)
    • Vulcan Materials Company (VMC)
    • Martin Marietta Materials (MLM)
    • Floor & Decor Holdings (FND)
  • Emergency Response Equipment Manufacturers:
    • Generac Holdings (GNRC) – portable generators
    • Xylem Inc. (XYL) – water technology and pumps
    • Tetra Tech (TTEK) – consulting and engineering services for water and environmental projects
  • Infrastructure Rebuilding:
    • Caterpillar Inc. (CAT) – construction equipment
    • United Rentals (URI) – equipment rental for construction and industrial companies
    • Jacobs Solutions (J) – technical and construction services
    • AECOM (ACM) – infrastructure consulting services
  • Waste Management:
    • Waste Management Inc. (WM)
    • Republic Services (RSG)
  • Roofing Companies:
    • Owens Corning (OC)
    • Beacon Roofing Supply (BECN)
  • Utilities (for potential grid modernization projects):
    • NextEra Energy (NEE)
    • Duke Energy (DUK)
    • Southern Company (SO)
  • Water Infrastructure:
    • American Water Works Company (AWK)
    • Essential Utilities (WTRG)
  • Insurance (potential for increased premiums and demand):
    • Allstate Corp (ALL)
    • Travelers Companies (TRV)
    • Progressive Corp (PGR)
  • Disaster Recovery Services:
    • ServiceMaster Global Holdings (SERV)
    • Servpro Industries (privately held, but worth monitoring for potential IPO)

As Phil likes to remind us, there are always opportunities and, with $372.2 billion in recovery spending projected – there will be many opportunities for our PSW members to take advantage of!

Conclusion

As we kick off Q4, the market is caught between excitement over recent gains and fear of overextension. Powell’s comments yesterday, combined with today’s economic data releases, could tip the balance in either direction. Keep your eyes on the charts, your hedges tight, and remember, it’s all about risk management at this stage.

Are we on the verge of a new leg up, or will we face the dreaded double top? Time will tell—but as always, stay nimble and stay disciplined.

Stay informed and trade smart!

— Cosmo