Yesterday I had the good fortune of discussing the latest market developments on Cheddar, a streaming business network that broadcasts from the floor of the New York Stock Exchange. We talked about yesterday’s falloff in financial stocks Bank of America (BAC), Goldman Sachs (GS)and JPMorgan (JPM) following comments by Bank of America that trading volumes in the quarter were weaker than expected. Paired with falling mortgage applications and slower loan activity, it stands to reason the level of demand for those companies would be less than expected.

The next move to watch for the financials sector will be the Fed’s next FOMC meeting that occurs in less than two weeks, and we’ll be watching Friday’s May Employment Report ahead of that. As Lenore Hawkins, Tematica’s Chief Macro Strategist, and I shared on this week’s Cocktail Investing Podcast that will hit later today, the May jobs number needs to be “just good enough” for the Fed to boost rates at least once this summer and take the edge of the most recent FOMC minutes. As a reminder, those minutes hinted the Fed was looking for clues to determine if the recent slowdown was “transitory.” We continue to think the Fed will be near hell bent on boosting rates this year so as to put more arrows in its monetary policy quiver for the next downturn.

We bring up all these data points, not to be a “Debbie Downer”, but more like a “Rhonda Realist”. With the current “recovery” long in the tooth, odds are we’re likely to see the eventual downturn. The fact that Trump’s agenda keeps getting pushed back and is now not likely to emerge until late this year or early next year doesn’t help. I talked about that as well on Cheddar yesterday, and you can watch that clip here. As we continue to let the data talk to us:

• We’re keeping our inverse ETF positions — the ProShares Short S&P 500 (SH), ProShares Short Russell 2000 (RWM) and ProShares Short Dow30 (DOG) shares — in play.
• Those subscribers that have held off adding, now would be a good time to reconsider as we head into the summer months.

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Dycom’s Recent Return to Earth Offers a Compelling
Mismatch Between the Share Price and Mobile Network Spend

As we noted in yesterday’s Tematica Investing, shares of Dycom Industries (DY) were walloped last week when the company offered guidance for the current quarter that fell short of Wall Street’s expectations, the result of a timing issue. That shellacking still left us with more than a modest profit in the position on the Tematica Select List, but we see that drop as an overreaction. Not to be repetitive, yesterday we said,

“DY shares are now back at early January levels, but from a fundamental perspective, we continue to see both cable and mobile operators expanding existing network capacity and launching new, next-generation networks to meet the nearly unquenchable demand for data. The silver lining in all of this is Dycom is seeing a broadening set of customer opportunities that are in the initial stages of planning, engineering and design and deployment. Also noted on the company’s earnings call, the company is continuing to win contracts, as customers work to improve their network capabilities and performance.”

Also on this week’s Cocktail Investing podcast, we shared some data uncovered by research firm Zenith that speaks to the intersection of our Connected Society and Content is King investment themes. Per Zenith, globally, individuals on average spent 456.1 minutes each day consuming media in 2016 and that is expected to be relatively unchanged for 2017. Simple math tells us that’s more than 7 hours PER DAY. Turning to North America, media consumption is expected to increase by 1.8 percent this year to 612.4 minutes a day, compared with 601.5 minutes last year. Yes, simple math tells us that is more than 10 HOURS PER DAY!

How is this happening?

Simple, the mobile internet, mobile apps and wireless connectivity drove our overall media consumption because it turned “what used to be non-media activity (talking to friends and family) to media activity (social media).” To us, this speaks to the logic behind the pending AT&T (T)-Time Warner (TWX)merger. It also means mobile and cable networks are likely to be capacity-strained as more people migrate to mobile content consumption… and how can they not, it’s easy and addictive. This means carriers will not only spend to build out existing capacity, but they will deploy next-gen networks that will faster data speeds and boost network capacity as well.

The bottom line is we see Dycom’s recent return to earth as a compelling mismatch between the share price and the required spend to build out mobile networks. As such, we’re adding the Dycom Industries (DY) September 2017 $90 calls (DY170915C00090000) that closed last night at $5.20 to the Select List. We would be buyers up to $5.75 and we’ll set a protective stop-loss at $2.00. Why so low? Note the yesterday’s trading range – between $3.74-$5.20. This means we want a wide berth near-term, and we’ll look to step up the stop loss level over time.

• We’re adding the Dycom Industries (DY) September 2017 $90 calls (DY170915C00090000) that closed last night at $5.20.
• We would be buyers up to $5.75 and we’ll set a protective stop-loss at $2.00.

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Michael Kors Closing 100 Stores:
Yet another confirming data point from our SPG Short Position

Last week Simon Property Group (SPG) shares flirted with our $163 buy-stop level, but ultimately traded off returning to the $154-$155 level. This week we received more confirmation for our negative view on SPG shares when Michael Kors Holdings (KORS), once the hottest name in affordable luxury, shared it now expects same-store sales to continue to fall in 2017-2018. This has prompted the company to shut more than 100 full-price retail stores over the next two years. And where are those stores located? Malls of course.

In other words, retail-megaddon continues and Simon Property Group continues to look like it is caught in the crosshairs. We continue to see even more downside ahead for SPG shares, with Amazon (AMZN) making a concerted effort to move into the $300 billion domestic apparel business. The online e-tailer appears to be making quick progress, as evidenced by registering the most apparel sales of any online retailer in the US during 2016 among the 18–34 crowd — more than double the market share of second place Nordstrom (JWN).

• We continue to have a $150 price target on our remaining SPG shares and buy stop order is still set at $163.

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Auto Manufacturers Continue to
Provide Discounts at Record High Levels

Later today we’ll get the details surrounding May auto and truck sales, but in the Fed’s latest Beige Book report out yesterday we noticed the finding included this particular doozy: “in contrast, some districts noted falling prices for certain final goods, including groceries, apparel and autos.”

Auto research firm JD Powers sees May auto sales up 0.5 percent year over year, but the devil will be in the details given that manufacturers continue to provide discounts at record high levels, which will have an impact on margins. Keep in mind JD Power’s forecast reflects sales data through the first 17 days of May, but here are some sobering facts — consumer discounts averaged $3,583 per unit, a record for the month, surpassing the previous high for the month of $3,342, set in May 2016. Moreover, the average number of days a new vehicle sits on a dealer’s lot before being sold hit 71 in the first 14 days of May, the highest level for any month since July 2009.

The bottom line is even if the industry manages to eke out a modest increase year over year, the underlying pain remains. With cars sitting on dealer lots longer and longer, past a certain point, General Motors (GM) and others will most likely trim back production levels. Paired with high incentives, that’s going to be a one-two punch to the automotive OEM gut.

• We are sticking with our short position on GM shares. Our price target remains $30.