Philly Cheesesteak Indigestion

Equities start the day lower as we digest a sloppy Philly Cheesesteak and a Fed meeting that has super smart people scratching their heads. Philly Fed came out this morning and had its biggest miss relative to expectations since August 2011 and its 7th biggest miss since 1998. Yikes…not only did headline miss but the new orders component absolutely threw up on itself falling into negative territory for the first time in nearly 3 years. Now look, I’m not going to make some broad sweeping conclusion based on a survey from a city that boos Santa Claus but it’s clear that economic activity bears monitoring right now. Yesterday Powell and his gang put out the minutes of their January meeting and basically were concerned enough about how things were going to shift into a far more patient stance. You know what’s crazy? They actually wondered if their own communications were one of the causes of financial market volatility!! "A variety of factors—including FOMC communications, weaker-than-expected data, trade policy uncertainties, the partial federal government shutdown, and concerns about the outlook for corporate earnings—were cited by market participants as contributing to a deterioration in risk sentiment early in the period.." Can you imagine Powell sitting at the end of some $10,000 mahogany table saying “Umm, guys, every time we say something the market acts like we’re buying puts so yea let’s rethink this whole tone we are projecting”. Check out my guy Tim Duy’s take on this but I wonder…do they seem all over the place right now? They’ve shifted to being patient because the data (and the market) demands it but what happens if growth accelerates this year? Not only are the talking dovish on rates but they are talking about ending the reduction of their balance sheet and what the heck to do with their dot plot!  Will they have to walk all of this back if Europe comes out of its malaise and we make a broad sweeping trade deal with China? Fascinating times my friends, stay tuned to the Bull and Baird blog for endless updates on Fed policy, what movie should win Best Picture (Bohemian R) and gif recipes for weekend snacking!!

After the open…well…no joke nothing really happened. Halfway thru the day I wondered on TWTR whether they had even opened the market yet. Is that a bad thing? Probably not, there’s no doubt we could use about a week or two of sideways so people will stop talking about how crazy the bounce is. So instead of writing 500 words about a terribly dull morning let’s look at this chart and jump to some kind of conclusion. What you are looking at is a chart by the good people of NDR showing 4 week equity fund flows vs the S&P500. What are you also looking at is what we who have spent our lives as traders call “people puking up stocks”. I mean not only puking up stocks but a historic amount of puke, like eating $20 of taco bell and drinking a bottle of Everclear puke (isn’t it crazy that $20 goes so far at Tbell? That’s like most of their menu at once). So…I wonder….do we think those people have jumped back in? Probably not right? It’s been a little over a month and a half since that happened and you have to think they are stubbornly “waiting for a pullback”. So what happens if we break 2,800 and put new highs in our sights? Yep, that’s right, they’ll come back in droves after selling the lows of last December. You know who can help you avoid stuff like this? Advisors, especially the awesome one’s we have here at Baird. Holler at me if you need someone to talk to. By lunch it was like we were stuck in molasses. 2,780 down 0.16%

We saw a small selloff in the afternoon and a close at 2,774 down 0.35% but let’s not make a mountain out of a molehill, there was also a last minute buying surge. Today was mostly about weak economic but yea, I mean we know growth is slowing. Q4 Atlanta Fed is 1.4% and if you check my links below you’ll see an article about Leading Indicators potentially having peaked (for now). As always it boils down to “what’s priced in” and we’re still trying to figure that out. But what if I told you Copper is perking up and Europe is perking up (h/t @williedelwiche for pointing out MSCI Europe is near a breadth thrust) would that, plus all those people who have probably been sitting out of the market since last Dec, interest you? It should… 

Final Score:  Dow -39bps, S&P500 -35bps, Nasdaq -39bps, Rus2k -39bps (what was up with 39 today?)

News Highlights:

I have two skiing videos for you tonight! It’s been way too long and I love skiing so let’s check these out

  1.  Have you ever wanted to know how a video ends more than this?
  2.  Ever seen someone ski on a 60 degree slope? Now you have. This is absolutely unbelievable

Have a good night

Good Breadth Or Bad Breadth

Equities start the day lower for what is one of the weakest, lamest excuses ever: “too far too fast”. When we can’t find a reason for a selloff the default is either “too far too fast” or “more sellers than buyers.” Both are equally pedantic and both can be roughly translated as “I have no idea but I need to say something because OMG WE’RE LOWER.” I mean sure, the bounce has been impressive but you know what’s equally as impressive? Breadth. My friend @hmeisler writes on it all the time (check her latest here) but my other friend @williedelwiche writes on it too and what he found on Friday could bode well for the future. What he and other are starting to see is a cumulative effect of “breadth thrusts” that have a really good forward track record (zoom the table on his tweet upper left corner). For those of you playing at home a “breadth thrust” is just a large number of stocks rising at the same time and hitting certain thresholds (just go with it...Wall St loves random terms like this). Willie pointed out of that we got one on Friday and that we should sit up and take notice. Now all of this doesn’t mean we won’t retest the lows or that the market won’t do something completely insane making us all look like idiots but if we use these measures of broad price movement to guide our thinking it definitely tips into the “if this happens then things usually get better from here” category (check this tweet from @wgeisdorf too). Hey…we’ll take it right? 

After the open we put “too far too fast” into our rear view mirror because, again, it’s a dumb reason to sell overnight. The low of the session was one minute after the open as we rallied on a couple things. First, WMT reported 4th Q earnings and blew them away. To be honest if you wanted a more meaningful look at consumer spending late last year this is probably preferable to that insane outlier Retail Sales number. Hey…wanna know what one of WMTs bright spots is right now? Online sales, which reached $10B for the first 9 months of their fiscal year. Not bad, I mean AMZN is still larger but companies like WMT aren’t afraid of Bezos and his crew. Second, we rallied off a better than expected housing number (NAHB). You guys know how much I love housing as an indicator so it’s good to see sentiment perking up there. Ok what else…winners were FCX, NBL, NEM, CTL, and WMT. Losers EA, ALLE, IFF, CAG, and HUM. You know who went ex-div today? Karl Lagerfeld, the fashion juggernaut. Now look, I don’t know much about fashion, I still wear khakis and Mickey Mouse polos but I do know that 1) one of my guilty pleasures is a fashion movie The Devil Wears Prada. When Miranda dresses down people I revel in it, I mean who doesn’t love that scornful look she has and 2) This quote by Karl drove a dagger thru my heart: “Sweatpants are a sign of defeat. You lost control of your life so you bought some sweatpants.” Uhhh…ummm…***sulks home to put on his sweatpants and eat doritos while crying***

The rest of the day saw fresh highs but a last minute selloff landed us closer to unchanged, 2,780 +0.16%. There’s a phrase that says “if the US sneezes the World gets a cold,” and I truly believe that’s the case. The US consumer carries the world on its shoulders from time to time as it buys and consumes and drives the World’s largest single economy. So are we sick or close to being sick? Let’s let Brett Biggs, the CFO of WMT, answer that from their conference call today: "This is Brett. I'll start off. The consumer, I think, still feels pretty good to us. You see all the numbers that we see. Wages are still pretty good; unemployment rates low; gas prices are down year-on-year. So, there's a number of things, I think, are still working in favor of the consumer. Like you mentioned, we're watching it, as we always do we're monitoring it in making sure that we're in the right place with the customer”. Does the most important retailer (and largest private employer) in the biggest most powerful economy in the World sound nervous to you? They don’t to me. I know that can change but ???  

Final Score Dow +4bps, S&P500 +15bps, Nasdaq +19bps, Rus2k +33bps.

News Highlights:

I have a bit of inspiration for you tonight. Put on a pair of headphones or listen to this video in a silent room because you will feel voices coursing through your soul. Imagine listening to this live, I bet it was incredible, the music just keeps soaring higher and higher.

Have a good night

Did The Grinch Win Last Christmas?

Equities start the day lower as Retail Sales implode. You read that right, we got a look at December Retail Sales and they unexpectedly fell the most in 9 years. Is that right? “Unexpectedly”?? Dear reader, do you remember what last December was like? Do you remember how the market went down every single day? Do you remember reading stuff like this in the freaking LIFESTYLE section of the NYT? (h/t @michaelsantoli) For crying out loud, it was the worst December since the GREAT DEPRESSION, I think we can rightly assume that people were a little skittish about giving a gift all 8 days of Hanukkah. I remember saying to my wife “no stockings this year, my PA is dropping faster than this guy’s life expectancy.” So there’s your look at what people do when the market falls like a brick, they circle the wagons, give someone a card instead of a gift and wait it out. I think we now know why the Fed switched gears and it’s not because of political pressure or any other nonsense you might’ve read about a stupid plunge protection team (it doesn’t exist, but I do love a good conspiracy theory).  They saw the slowdown, they have their ear to the ground, heck Jim Cramer was yelling at them nightly to ease off the hawkishness. I think the jury is still out on whether that Dec hike was a policy mistake but at least they recognized the need for rapid change. If they continued on their tightening path they likely would’ve thrown us into a recession. Look, if you want something to worry about try the uptick in weekly claims. I’d argue that’s more bearish than a retail sales number that seems like an impossible outlier.

After the open we got a wild first half of the session. Futures got poleaxed on the Retail Sales number but managed to find stability about 15 mins into the session. Ok, not bad, down 50bps or so, not the end of the world. Then a headline hit that China and the US are still far apart on reform demands and it felt like the day was sunk. But you know what? It wasn’t, in fact the reaction to the China headline was muted. We began to inch higher and by lunch we had erased ALL the losses to trade in the green! USA USA USA. Hey, here’s a headline that I’m sure will spawn a million spicy takes: $AMZN tells NYC to pound sand. Yep, it looks like one bite out of the big Apple was enough for our man Jeff. I think I’ll let smarter people handle the ramifications of this one, there’s too much politics / agendas / raw feelings for a guy in the Midwest to untangle. Hey @JeffBezos, you can always come to MKE, I mean who doesn’t love random -60F days every now and then? Makes you tough like that Lyana Mormont. Winners were MRO, EQIX, VMC, ATVI, and ZTS. Losers IFF, CTL, KO, AIG, and MGM. My gosh Coke fell 8.5%, what an absolute drubbing. How often do you see a 133 year old beverage company put a gap on its chart like their stage 1 drug had 0% efficacy?  Ouch.  (btw I love the word efficacy, what an underrated word to use on someone you don’t like.  “Hey john, your efficacy in emails is appalling, step it up”  just sounds so smarmy)

The rest of the day saw endless debate about AMZN and NY with the market closing at 2,745 down 0.27%. Look here’s where I think things sit. My favorite indicator, New Home Sales, started slowing in November 2017 (may have even peaked). We know that New Home Sales tends to peak first in the cycle so that’s important to monitor. We also have one eye on unemployment and like I said, the most important data point today was likely Weekly Claims. Retail sales in Dec was probably a one off but now we have to watch that more closely too. Homes, Jobs, Consumption, keeping your macro view simple allows you to filter out excess noise. I think the Fed being on pause makes complete sense, the data justifies it, they didn’t go dovish because they saw the stock market falling, they went dovish for all of the reasons I just mentioned. All of this doesn’t mean a recession is imminent but these indicators are what smart people watch for a turn in the cycle. In fact Atlanta GDP now is 1.5% for Q4 2018…whoa…let’s hope that slowdown is behind us and the worst of our growth fears is waning like my interest in continuing to type. 

Final Score:  Dow -41bps, S&P500 -27bps, Nasdaq +9bps, Rus2k +14bps.   

News Highlights:

Tonight I have a short, funny video that reminds us to never argue with stupid people. Just move on as quickly as you can (something I'm trying to learn on TWTR)

Have a good night

Does The Market Make Sense Right Now?

Equities start the day higher as the market settles in to a place that kind of makes sense to me. That’s a weird statement right?  How often does the market make sense to anyone? Bear with me, and if you disagree with all this make sure to flame me on Twitter (@bullandbaird). We’re off to the best start in 30 years right after the worst December since the Great Depression. If you wanted a reminder of how difficult markets are to navigate, well, there you go. Why have we bounced so hard? Well, the Fed went full “open the Olympic games and fire off the doves,” economic data started beating expectations, earnings are slowing but haven’t collapsed, housing appears to have bottomed (more on this later), and sentiment hasn’t reached lofty levels alongside the market. That being said, sentiment IS inching higher and my friend Helene is on watch for it to be over its skis. Remember, markets don’t trade on good news or bad news, they trade on better or worse, and things didn’t get WORSE from what we thought was happening at the end of 2018. In fact, things seem to be getting better right? The trade war seems to be thawing, the gov’t isn’t going to have another stupid shutdown, people are optimistic about their financial future, and while we are likely to see earnings growth stumble I think the market is trying to price that in here. So what would downside look like? A retest of the lows? It would take a few months and start with the aforementioned sentiment moving too far in the bullish direction, it would probably accelerate with a massive earnings decline, and it would plummet if the world really does slip into some kind of Global recession and animal spirits die like my January diet. But right here, as we recapture the 200 day MAVG and sit ~6% below the all-time high, I think the market makes sense with what it’s doing.  

After the open we saw a decent early morning rally evaporate after Marco Rubio decided he wanted to go off about stock buybacks. I guess we’re at that point in History where there’s no good boogeyman out there so faceless corporations are going to bear the brunt of public outrage because apparently they like low risk ways of returning capital to shareholders. Man, how bland is that, can we get a new Cold War or something? Imagine the 2045 documentary on the US vs stocks buybacks, would make a 4hr lecture on convexity seem like Die Hard. Anyway, since we only breached the 200 day yesterday I guess we needed to churn lower to see what happens. Winners were HLT, FCX, ATVI, GPN, and GE (did I really just type that?) Losers DISH, TRIP, CERN, JWN, and RL. Can we talk about housing for a second? That sector got absolutely demolished last year as rates rose, affordability seemed out of hand, and people wondered if the cycle had peaked. The housing ETF, XHB, fell 35% from its peak and many of the companies that make stuff that go into the construction of a home fell 40-60%. DEMOLISHED. So why does this matter? Housing is a spectacular economic indicator so let’s check in and see what’s happening now. The sector has bounced…hard...and that has to be viewed as a positive if you are bullish. By lunch we were drifting around 2,752 up 0.20%.  Hey…you want a good idea for Valentine’s Day? Give your spouse a gift of free time. That’s right, skip the lame flowers and tasteless chocolate, tell them that you love them so much they get all of Saturday off to do whatever they want. Oh and if you’re dating with no kids then I don’t know what to tell you, the last time I was single cellphones didn’t even exist.  Maybe get them a magnetic lamp or a keyboard shaped waffle maker (no wonder my wife hates me). 

The rest of the day was a bit snoozy and we closed at 2,753 up 0.3%. Not bad, a late day selloff piqued my interest but we did manage to stay above the 200 day so all’s well that ends well.  So in the first paragraph I mentioned what a retest would look like, what does the upside look like? I think it’s going to have to involve no gov’t shutdown, some kind of broad stroke deal with China, and then the hard part: global growth to resume.   Europe and China are still a mess, we need some kind of green shoots there before we shift into a higher gear. Unfortunately that takes time, so I think we’ll end up grinding these levels for awhile keeping an eye on sentiment. We don’t want it to get out of hand… 

Final Score:  Dow +46bps, S&P500 +30bps, Nasdaq +8bps, Rus2k +31bps 

News Highlights:

We’ll end tonight with one of my all-time favorite types of Fail videos. The one’s where Gravity wins…(I bet you can’t watch 2+ mins)

Have a good night

What's Priced In?

Equities start the day lower as we continue to struggle with one specific question: What’s priced in? Now this is a question that the market is always concerned with, in fact not only does this question have no real answer it pretty much gets asked every single day. But in this case we’re asking ourselves “what was the market pricing in on Christmas Eve when it threw up all that egg nog?” Well, from my seat it appeared to be pricing in a rapid global deceleration not only in economic data but in earnings and sentiment. We had fallen 20% from the highs and the term “imminent global recession” started to get thrown around alongside “Merry Christmas”. Luckily for us earnings have just kicked off so we can get a look at 4Q 2018 as well as guidance about the next 6-12 months from corporate leaders. This week we saw a slew of bank earnings and something unusual happened: names like C, WFC, JPM, and a few others traded LOWER pre market but by the time the bell rang closed solidly in the green. What’s priced in? Had expectations about their earnings plummeted so much that these banking titans jumped over a broomstick? It’s possible, sure, and this is a good time to remind you that “it’s not the news that matters it’s the reaction to the news”, but had we priced in too much negativity? Was that move in December too severe to the downside? Only time will tell but the initial wave of earnings haven’t been all that bad. Has earnings growth slowed? OF COURSE IT HAS, the tailwind from tax reform was bound to subside, let’s not act like that’s a big surprise here, but is a recession imminent?  Baird strategists say no and I’m inclined to agree with them. The Christmas Eve lows and what lay beneath was about an imminent recession and a full blown Bear market. As of this morning that continues to recede in the mirror.

After the open, early morning buying showed up like it has the past few sessions and propelled us back towards the 50day MAVG. I’ll admit that I thought 2,600 was going to be harder to get thru then it was (took us one attempt) so let’s see if we can grab this 50day and never look back! We got a few notable earnings from MS, CSX, DPZ, and FAST so let’s briefly talk about the first 3 then focus on FAST. MS whiffed and actually got punished falling 4%, CSX missed, fell 1%, and the last things Bulls want to see is a transport acting poorly (it doesn’t sound that bad though). DPZ reiterated their guidance at an investor day and the market is so worried about a recession that a $254 pizza company rose 4% (can you sense the sarcasm?  I put an extra helping on that one).  Speaking of recession, FAST reported and the stock jumped a juicy 5.5% (we rate neutral). If you don’t know what FAST does they are an industrial distributor so they are super sensitive to economic cycles. They did complain about “choppiness” in the 4th Q but nowhere did they sound any alarm bells about the economy. Sure, they are dealing with headwinds like tariffs and falling margins but I poured thru 6000 lines of text and 82 analysts saying “hey guys great quarter great color” to try to find something super negative and I couldn’t (do you guys HAVE to say that every time?). What exactly were we doing on Christmas Eve? What were we pricing there?

In the afternoon we saw a headline from the WSJ that the US is “weighing lifting China Trade Tariffs” and the market RIPPED. Straight up, thru the 50 day, and Bulls were all sorts of giddy. But, it turned out to be fake news, got repudiated, and we gave it all back. Sigh. Boy who Cried Wolf. I mean at least we know what the market is thinking right? If I could speak to the President I’d say “Hey, Mr President, sir, Donald, pass me a Big Mac and one of those double cheese and let’s talk about the fact that if you end this negotiation and declare some kind of victory you could get a huge rally out of stocks.  Look what a fake headline did!” Alas, I am stuck in the frozen upper Midwest, doomed to write blogs about markets and never advise the President. THANK GOD.

Final Score: 

Dow +67bps, S&P500 +76bps, Nasdaq +71bps, Rus2k +86bps.  Btw, all 4 of those indices are above their 50 day MAVG.  SHHHHHHHH

News Headlines:

Tonight we’re gonna end with cringey performances. I couldn’t even get by the first one (though if you make it to the dude with the recorder you’re in for a real treat)

Have a good night