Growth Worries...They Are Evergreen

Equities start the day lower after a wild week where the market tossed its cookies, Purdue actually played well in a NCAA Tournament game (they never, ever play that well), and the US political world….you know what you’ll never read in this here market recap? Political commentary because A) It doesn’t interest me and B) my goal is to make learning about markets fun and politics is the antithesis of all that. Speaking of tossing cookies, has anyone ever ridden that “Harry Potter and The Forbidden Journey ride” at Universal Studios in FL? I was there for an event and tried to ride it 3 times in a row. One could describe such a thing as “foolhardy” but that would be an understatement. I’m quite certain that jumping in a clothes dryer would give you less motion sickness. Anyway, we’re back to worrying about global growth so YAY! I love worrying about global growth, it’s as evergreen as me getting Auntie Annie’s in an airport concourse. Europe has negative yields, banks are getting crushed, our yield curve inverted (like me on that ride) and stocks have all of a sudden got a case of the jitters. You know what hasn’t gone haywire though? Credit…which strikes me as odd. Take a look at the IBOX High Yield Credit index. If we’re so worried about a recession and an imminent bear market why haven’t riskier credits shown any signs of concern? Ari Wald (via JB) talked a bit about it here and I’m inclined to agree with his conclusion. It’s a slowdown worry not a recession worry (for now). Right now we do not believe an imminent recession is likely in the US but that doesn’t mean growth expectations aren’t currently being reset. 2600-2800…the range persists.

After the open we got a whole lot of sideways and not much of a bounce from Friday. Small caps did well, as did Consumer Disc and Industrials, but the overall market really couldn’t get going in the right direction for very long. We briefly touched green around Europe’s close but by the afternoon we had given that up to trade 2,792 down -.30%. Apple had an event where they introduced a whole slew of new subscription services like Arcade, News+, and TV+ (I am definitely going to launch BullandBaird+). To make sure it looks as good on the big screen as it does on your phone all their new content will be viewed thru the same maze of cracks you have when you dropped your phone. How amazing is that? What a company. Seriously though, I have 10+ subscriptions right now between all the services I use. Ugh, the absolute last thing I needed was another monthly bill. Actually, does anyone wanna start a company with me that manages the insane amount of subscriptions people are going to have in the future? We’ll call it SubHub.

The rest of the day involved watching bond yields slip lower and wondering why..why do they keep dropping? What are bonds thinking? Look, no one knows where the market is going and no one knows when the next recession will happen. Yield Curves and New Home Sales and Unemployment and all the other fancy economic indicators are just pieces to a puzzle that no one can put together in real time. That being said, take a look at the Chicago Fed National Conditions Index which is at near lifetime lows (basically measures how easy / hard it is to get money). If a recession is close its going to have to come at a time when “financial stress” isn’t even a thing in credit markets. Doesn’t that seem peculiar to you? 

Final Score: Dow +6bps, S&P500 -8bps, Nasdaq -7bps, Rus2k +46bps (best news of the day I guess)

News Highlights:

So I actually found a final link with a Harry Potter theme!! Do you know how hard it is to find a short video that links my first paragraph to an end video? It’s hard….harder than writing about finance…

Have a good night

Welcome Newbies

Equities start the day higher as we once again trade back to the top of the range. Let’s circle back to the market in a second, I wanted to welcome all my new subscribers and tweeps because it’s been a heck of a run lately. This blog has grown to about 3,000 subs and my Twitter account is now the largest account at Baird! Let’s go baby!! Thanks for being part of my mission to make markets fun and interesting to read about. That being said, if you want off this email just hit reply and type “unsubscribe” and I’ll remove you while crying into my pillow. Anyway, enough of that, a huge rally yesterday took us back to the top of The Range and I wanted to point out two things. 1) Sentiment (as measured by the NDR Trading composite) fell back to neutral after a tiny selloff. Hmmm. 2) People continue to flee the market like it’s being flown on a 737 Max 8. Huge outflows are an underrated story of late 2018, early 2019. So check this: a VERY small selloff (roughly 2.5%) caused sentiment to drop alongside a backdrop of constant outflows. It seems to me that “bullishness” isn’t all that deep seated is it? There are some very jittery people trading right now and I think it’s safe to say that this is NOT a “loved market”. So with that backdrop our team continues to believe that the 2nd half will be better than the first and even if we grind this range for a while that’s not a bad thing.

After the open we spent a good amount of time grinding back towards 2,800 but most of our time talking about two stories. Boeing’s continuing dilemma with the Max 8 (not fun to blog about) and rich people bribing college official to get their kids into school (fun to blog about). Are you kidding me? You paid $500k to get your daughter into USC by pretending she rows crew? Absolutely ridiculous and worthy of relentless scorn. Look, let’s set aside the toxic ramifications of “advantage begetting advantage” which destroys social mobility in a society and focus on the fact that once you show that you are competent at what you do NO ONE CARES where you went to school. Talent is talent, it doesn’t take a “prestigious college” (whatever that even means) to be incredibly successful in life. Sigh….college is easily the worst bubble we have in every sense of the word. Our children shouldn’t have to endure crushing debt and a corrupt system just to say they went to XYZ University. It’s a complete farce. Education is important and a worthy goal to attain but the rat race of prestige is out of control. You know what? If you put that $500k into an S&P500 fund when you child hit 18 and that fund returned the long term average for stocks (~9%) little Johnny or Jane would have $5.1mm by age 45. I’m angry, I’m on tilt. I need to move on.

I spent most of the afternoon in a meeting with my new peers in PWM where they told me the IMO was working well with our Branch CSs and the CTAP was on schedule to be integrated into our toolkit so yea, group meetings in Baird’s Private Wealth Division is like living inside an episode of The Office. We closed at 2,791 0.3% which is still shy of that magic 2,800. Let’s go back to my “range” chart quickly. We’ve been in 2,600 – 2,800 for over a year now with only 3 deviations. 1 and 2 are all about “yay, things are great, we’re growing and people are buying homes because they’re confident about their jobs and the economy” while 3 was about “holy cow the entire World just hit a wall and we might just slip into the abyss.” Both the upside and the downside seem wrong with the current state of the World so I guess the range makes sense.  Home, Home on the range. 

Final Score:  Dow -34bps, S&P500 +31bps, Nasdaq +44bps, Rus2k +6bps.  

News Highlights:

We’ll end tonight with a fantastic magic trick that I still haven’t been able to figure out. Amazing

Have a good night

10 Years Since The Low

Equities start the day slightly higher on the 10 year anniversary of the 2009 low. 666.79, I mean can you even make a number like that up? There’s no doubt that the universe has a sense of gallows humour. Anyway, there’s a great many things I remember about that time period foremost of which was my Dad calling me up asking if he should sell Wells Fargo at $8. I recall saying to him “if you think Wells Fargo is going lower from here you think the entire Western banking world is a zero and that the future of our economy is trading rocks and yarn animals for milk”. Fun times. You know when I look back at my behavior in that moment I think what saved me was (and this is gonna sound crazy) being kinda clueless about investing. I was 36 years old, I had been working at Baird for 2 years, I had a 3 year old boy and a 1 year old girl so I just kinda went to work and did my thing helping clients all while ignoring my Battle of Iwo Jima 401k. I mean I was 36, I had 25+ years to retirement, what changes was I going to make that would help me reach my goals? None, zero, in fact I only could’ve hurt myself had I reacted to the moment. Morgan Housel said “your lifetime results as an investor will be mostly determined by what you do during wild times” and he’s spot on correct. So how did you act in December of last year? Poorly? Did you make rash decisions? If so then you can see how valuable an advisor can be. I mean I didn’t intend to turn this into a pitch for advisors but hey, that’s where I ended because their value in those moments is IMMENSE. Speaking of advisors, one of my good friends here who just so happens to be one said during the worst moments of 2008-2009 he had to turn to making people laugh to keep them sane. I absolutely love that and if anything crazy like that happens again I’ll be here to help but also to make fun of stuff like this. WHAT THE HECK HEINZ?!? THOSE ARE SO BAD. Dear $KHC marketing team: hit my email if you want better ideas than that.

After the open it didn’t take long for stocks to turn south and we spent the entire first half grinding lower. Man did we reject that wall or what? Here’s how I see it right now: there’s two distinct camps and maybe one camp that unorganized. The two distinct camps are “Due for a Pause” and “Retest the lows”. The unorganized camp that can’t manage to pitch its tent is “New Highs soon”. Certainly the fact that we’ve bounced this much has raised bullish sentiment, I’m not discounting that, I know people have turned bullish with price, all I’m saying is that “new highs soon” really isn’t mentioned that often in daily notes or strategy pieces. Regardless, I’m definitely in the “due for a pause” camp (as are MOST people) and when I see what Transports and the Rus2k are doing I’m ready to start unpacking my rucksack. I mean how often can we rally on “China trade deal optimism”?? Gimme a break with that already. But if most people are in “due for a pause” and only a few are in “new highs” does that make “retest the lows”, a camp only Perma Bears are in right now, something to worry about? I guess only time will tell. Winners were LYB, DLTR, AON, MO, and ATVI. Losers GE, WLTW, BF/B (but Jack Daniels is GOOOD), and MU. By lunch we were near the lows, 2,773, down half a percent. 

The rest of the day saw a grindy market that never picked up its head and a close at 2,771 down 0.65%. So it’s been 10 years since the low and a lot has changed (h/t RY). What hasn’t changed is the fact that our nation has an incredible future. Even when we are struck by a crisis, or an event that rattles our faith in the system, Americans come out stronger and more determined. The GFC could’ve ushered in a Depression but it didn’t. It could’ve ushered in a run on our financial system and a collapse of our economy but it didn’t. Americans get knocked down but they always get back up ready to rush headlong into the future. See this video?  See how that number just goes up? That’s why people pour their life savings into this wonderful place, because no matter what party we belong to, or what our beliefs are, we all share a common goal of seeing this great nation of the people, by the people, for the people….THRIVE. 

Final Score:  Dow -51bps, S&P500 -65bps, Nasdaq -93bps, Rus2k -201bps (UGH)       

News Highlights:

So every time my wife and I sit down to watch a show on the nature channel a muskrat or a random lemur gets eaten by a Tiger and she breaks down into tears like she just heard Amazing Grace played on the bagpipes. It kills me. So this link is for her….animals winning!! (the elephant at the end is my hero)

Have a good night  

The Wall

Equities start the day lower as we continue to deal with The Wall. Look, I don’t plan on using movies in every single blog (I know I just did Bohemian Rhapsody) but I need to do another one because I’ve never experienced anything like Free Solo. If you haven’t seen it yet it’s on iTunes for $5.99 so skip the two pump, half caf, half chai soy mocha skinny latte that people hate you for ordering and dial up this movie. It’s an unbelievably gripping, nerve wracking documentary about Alex Honnold and his quest to climb El Capitan with no ropes / safety precautions at all (dubbed in the climbing world “free soloing”). Early in the movie an expert climber says “this is the equivalent of a gold medal Olympic performance but if you don’t get the Gold you die”. I swear to God you’ve never experienced “movie stress” quite like you will when Alex approaches “the boulder problem” (email me when you get thru this). His achievement, getting up and over this wall with zero ropes, will probably never be ATTEMPTED again. It took a certain set of circumstances and a quirky, mentally tough athlete to even happen (most Free Soloers just end up dead). So what does this have to do with the market? Let’s look at another wall that’s proving difficult to get over, the 2800 wall. We keep walking up to that wall and saying “nope, not today.” Which I can understand, my friends at Strategas have argued that a pause makes sense here and I’m on board with that. But what kind of courage do we need to scale it? In my opinion it would involve 1) the World starting to grow again 2) investors willingly paying a higher multiple for earnings that appear to be slowing and 3) some kind of clear cut resolution to the US China trade war. It’s a tall task but as Alex Honnold has shown, humans can do anything they put their minds to.  (btw, I just found out that it’s playing on TV soon: Free Solo. 9 p.m. Sunday, March 3, National Geographic Channel.)

After the open we spent an entire day debating 4Q GDP and marveling at the fact that stocks are going absolutely nowhere. You know what the last 4 closes are for $SPX?  2792.37, 2793.90, 2796.11, 2792.67. Equity markets at the end of Feb…FEEL THE THUNDER. Q4 GDP came in better than expected, 2.6%, and full year 2018 is going to register 2.9% so yea…the same as its been for years. If you’re expecting some kind of political comment on Obama vs Trump economies you can forget it, here at BullandBaird we talk markets, pop culture, and how I can obtain one of these because I hate WI winters. Here, let’s play alongside @ukarlewitz where he asks us to “spot the pattern.” Did you know there’s almost zero correlation between GDP growth and what the stock market does 12 months later? The correlation only becomes meaningful when GDP is NEGATIVE (of last 31 times we’ve seen negative GDP growth, SPX has been positive a year later 29 times). Oh well, as Buffett once pointed out, there’s no reason to cry over that level of growth. Winners MNST, TTWO, LUX, LKQ, and UHS. Losers HPQ, BNKG, CELG, and LB. Feel bad for LB, a company with incredible brands that just can’t seem to catch a break among rapidly changing consumer trends.  By lunch we were still going nowhere.

The rest of the day featured Bryce Harper being paid a stupid amt of money, a debate over MMT (don’t click unless you like wonky), and a close at 2,874 down 0.28%. I just..I still can’t get over what this Alex guy did. I’d like to say my primary emotion watching that movie was fear but after it was over I think it was inspiration. When you work in markets and finance you run into pessimists everywhere. People who say “this is bad and that’s bad and this can go wrong and that can go wrong.” It’s just the nature of the industry to constantly worry, to point out that something somewhere is scary and that we should pull back to a safer more comfortable space. Alex Honnold probably faced those same people on his path to the rock but he, like all the most successful people you read about, had optimism as his default setting. He saw a challenge and instead of saying “that’s not possible” he said “it is possible and I’m going to do it because I believe in myself”. Take his lesson to heart, watch him overcome a seemingly impossible obstacle, then come back here and share my joy in human achievement. 

Final Score Dow -26bps, S&P500 -28bps, Nasdaq -29bps.  

News Highlights:

I have two final links for you tonight but I’d rather you just go watch Free Solo.

The first is a guy skiing in France….on rooftops

The second is some hilarious “tongue in cheek” parenting tips.  Its comedy, don’t even @ me

Have a good night.

Career Changes While Listening To Bohemian Rhapsody

So this headline hit inside of Baird last week: “We are excited to announce that Michael Antonelli has transitioned to Private Wealth Management, joining the Investment Strategy team as a PWM Market Strategist”.

I always wondered if trading was something I’d do until the final day of my career. Trading can be an incredibly rewarding role full of excitement and endless opportunity but the fast pace and relentless pressure can grind people up and spit them out like so much chewed bubble gum. There are people who make a 30+ year career out of it though and I have an unbelievable amount of respect for them. They wake up each and every day ready to help clients execute investment strategies in quiet markets and in savage markets all while keeping a calm, unflappable demeanor (cough ahem). I guess I could’ve made it the whole way but I discovered that I loved writing and talking to people about markets in a unique, easy to digest way so I pitched that to Baird management and here I am, a freshly minted market strategist.

On my way home from a final work trip to London, as I sat crammed into seat 27E desperate for some kind of whiskey product and to be entertained for 8 hours, I came upon Bohemian Rhapsody, the best picture nominated biopic of Queen and their riotous front man Freddy Mercury. I think my first real experience with Queen’s music was like most people who are in their early 40s: in the movie Wayne’s World, the brilliant 1992 comedy starring Mike Myers and Dana Carvey. You see I was born in 1973, so I came of music listening age when Duran Duran and all that other 80s crap was flooding high school airwaves. Now I’m sure there are 40 year old music-philes who will say they always loved bands like Queen but I never really appreciated anthem bands and classic rock until I was older which, I guess, is the natural evolution of someone who is always late to cool stuff. Anyway, as I settled in with my tiny Jack Daniels (can I get two or three at once?) I had no idea that I’d leave that plane inspired by a man and a band that some say put on the greatest live performance of all time.

The penultimate song of the movie, Bohemian Rhapsody, was savaged by critics when it was released. Rolling Stone called it a “brazen hodgepodge” and in TIME’s words, “a six-minute cut that mingles introspection with Gilbert and Sullivan operatics” by a band with little public profile. I can’t say that my initial reaction to hearing the song was “holy cow this is a masterpiece” but after watching the movie and reading about Mercury and the creation of the song I think there’s wisdom in it for all of us. 

It is said that the song is a story about Freddie’s life, his confessional. A man who became a legend but struggled mightily on his path to fame, someone who would’ve been happier had he just been honest about who he was from the start. The song, like his life and your life and my life, has multiple disparate sections where you wonder “how is this all going to tie together and not turn out to be a disaster?” But the lyrics and the different styles, while seemingly all over the place, turn the song into a wondrous rock epic. They come together to create a masterpiece just like the different parts of our lives weave together to make you and I who we are. One part anthem, one part melancholy, one part operatic, one part confession. You and I piece together a twisty turny career alongside friends and family, we link them all together into one musical movement that defines us. Child one day, adult the next. Trader one day, Strategist the next. There’s no set course for us to be on, no framework to follow, so keep being you and know that true masterpieces always show up in the most unexpected of places: an Italian woman smiling, a red bridge across a bay, a clock tower along a river, a 6 min song that people initially hated. Freddie and Queen poured every bit of creative energy they had into that song and it shows. I’d argue it’s the best rock and roll song of all time; people will be listening to it long after we depart this Earth. 

Allow me to end with the lyrics to another amazing Queen song, Radio Ga Ga:

So don't become some background noise
A backdrop for the girls and boys
Who just don't know or just don't care
And just complain when you're not there.
You had your time, you had the power
You've yet to have your finest hour