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

A Bit Of Air Leaks Out Of The Balloon

Equities start the day lower as a bit of air leaks out of the balloon. Look, we’re up like 10% since the day before Christmas and there’s more overhead resistance than my SAT scores so yea, a few down sessions are inevitable. There was quite a bit of news overnight from domestic U.S. concerns so let’s glance thru it quickly and see if we can spot any trends. A few retailers threw up on themselves after cutting forecasts and talking about a “December sales slowdown”. Macys tumbled the most in a decade after pre releasing, Kohls the same, and Nordstroms fell because the other two fell (how bad that does that suck?). Is the consumer dramatically slowing? Maybe, I assume bears will jump all over this to make the recession case. But if I wander thru the shopping aisles and look at other names they haven’t said anything similar (as of now, don’t even @ me). CROX, makers of plastic shoes with holes is near an all-time high. They even have a Post Malone version that sells for $300 on Ebay (I love this Spider Man Post Malone song btw). RH, makers of $2000 “reclaimed wood tables” (hey guys, we went to a collapsed barn in Dubuque and found some cool wood, buy our table and show it to your haughty friends), is up 6% this year and not that far from it’s all time high. LULU, makers of $100 pants my daughter suddenly loves (I’m screwed), is up 7% YTD. People aren’t going to Macy’s but they love $90 ABC pants? I don’t know, maybe there’s no coherent theme to a “consumer slowdown” yet, maybe it’s still bubbling like my wife’s tortilla soup and ready to burn the top of my mouth like every soup ever. I just don’t know. But you know what? That’s refreshing to say. I legit don’t know and no one else does either. What I’m looking for are clues to a consumer slowdown, something that would mimic this sideways move in Retail sales that preceded the past two recessions. Now maybe CROX, RH, and LULU aren’t the right places to look but I thought they’d make for interesting commentary. Anyway, let’s look at today’s price action.

After the open we saw a bit of early weakness but you know what? It got erased a little over an hour into the session. Curious?  Hmmm…quite curious. With the retail carnage + a big bounce off the lows we had every reason to see the market sell off but it didn’t, it actually rallied all morning long.  Now the sector makeup wasn’t exactly L’Oreal good but it wasn’t high school trashy makeup bad either (they don’t pay me, I had to buy some for my wife so it’s all I could come up with). Real Estate, Utils, and Staples were all near the top but Industrials managed to grab the silver medal so that’s somewhat comforting.  However, and this is where the rant begins, Chairman Powell made a few comments around noon and this here market decided to act like a petulant child. My man actually said “we are on no preset path” which is EXACTLY what we need to hear from him but then he casually threw in that they want the balance sheet to be “more normal” and the market threw a tantrum. Pathetic…truly pathetic. WAAAH I don’t get cake plus candy after dinner? WAAH. Can we not be wholly reliant on the Fed doing nothing in perpetuity please? Winners:  STZ, IP, GE, PKG, WRK, and NWL. Losers:  M, LB, KSS, AAL, JWN, UAL, GPS. Hey…friend…follower…reader…are you ready for more distracted driver accidents because you’re gonna GET more distracted driver accidents. “I don’t know officer, one minute I was looking at the heart rate of some dude in the corner and the next thing I know I hit a pole” 

The rest of the day saw us shrug off that tantrum and close near the highs! That’s 5 up days in a row for $SPX….are we back? So Bespoke took a look at big rallies off major lows and unfortunately for us couldn’t come up with any concrete good news. There were times when a bounce this big marked the low and times when it didn’t. If I had to guess what market prognosticators are expecting I’d lean towards “retest in the coming months” over “that was the low” but we’ll only know in hindsight and that’s what makes stock market investing so hard. Hey…did you know the Soprano’s debuted 20 years ago today? Old…so old…I bet there’s someone in your office who has no idea who Tony Soprano was and why the show ended on such a stupid song. 

Final Score:  Dow +50bps, S&P500 +44bps, Nasdaq +42bps, Rus2k +46bps

News Headlines:

We’ll end tonight with a breathtaking magic trick. This guy (and his wife) need to start at show in Vegas ASAP.


Have a good night

The World Is Filled With Optimistic Eagles Fans

Equities start the day lower and I’m still mad about something that hasn’t happened in over 8 years. No, not the stock market assassination, we’ll get to that in a second, I’m talking about the Bears losing in the playoffs. I’d rather endure endless December 2018s than have to live thru another kicker bonking a field goal against the post. A KICK HE SHOULD MAKE 99% OF THE TIME. That’s it, I’m done with the NFL, I’m going to E-Sports to be hip to the youngs. What do kids play nowadays? Underwatch? Fortday? What are those games called? I know it’s been awhile since I’ve written the recap, as always I apologize, I’ve been trying to think of a way to reboot this thing to keep it fresh in its 9th year of existence. Maybe I keep it shorter and bloggier, less day to day-centric and more timely thoughts about the market. We’ll see, it’s a big exciting year where anything can happen to your boy (and may have already…). Ok, let’s have at it, what’s the current sitch and will we ever get out of this grinding cyclical bear? Well, Friday helped, it was the 2nd “90% up day” we’ve had since the Christmas Eve massacre. Why does a “90% up day” matter? Well it tends to show that markets are breaking their horrific downside momentum because buyers are scooping up everything in sight. It’s just ONE condition for a bounce (sentiment is another) but we want to see it. The thing is, it might just be a counter trend rally and not THE bottom. Smart people I follow expect some retest of the lows. Oh and what about these “recession” calls? Friday saw a 312k NFP, one of the best of this cycle. Does that prove we’re not in a recession? No, it probably doesn’t prove strength, what I think it does is disprove severe weakness. Make no mistake, we’ll have a recession one day, but to me the data isn’t all that convincing right now.

After the open we got a nice bounce because apparently the World is filled with optimistic Eagles fan. If I had my way we’d have sold off 5% because there is only darkness in the world, the light has left me. ISM Services printed 57.6, which isn’t bad (I know it’s down from 60.7, take it easy beary mcbearison), and check out this textual nugget from the survey “Economy still chugging along, despite the rise in interest rates and relentless political claptrap” (finance and insurance). Claptrap, I love it, let’s bring back vintage terms like quagmire and morass too! The rally continued thru the morning led by a couple of things that pleased me: the Russell 2000 outperforming and risky sectors topping the leaderboards (Discretionary and Energy). Look, smarter people than I have said this but we are absolutely in a “good news is good news” market.  If economic data or earnings collapse we’re gonnna get a mouthful of fur. Winners MAT, AMD, ULTA, CMG, and GE.  Losers PCG, LW, MDT, NDAQ, and ICE (exchanges are SOO long vol aren’t they?). Oh and $MA dropped its name from their logo today. That’s right, instead of “Mastercard” below two tennis balls now it’s just the two tennis balls. I love late stage capitalism. “You know who we are don’t pretend you don’t. Now swipe the card”.  

The rest of the day saw a lot of sideways on the highs and a close at 2,554 up 0.88%. Here is what we’d really like to see this week: sentiment remain very pessimistic, the Rus2k and the NYSE Composite outperform things like the S&P and Dow, sector leadership from industrials/banks/discretionary, economic data to remain firm, and the NFL to say that the Eagles actually lost. That would be something I’d be interested in.  Anyway, allow me to end on this amazing stat @ryandetrick posted today:  

Since WWII, the S&P 500 has been down two years in a row only three times.  Once during the '73/'74 recession and then twice during the tech bubble in the early 2000s.  In other words, without a recession in 2019, history would say another down year in 2019 would be quiet rare”   

Think about all the years since WW2 ended, think about all the administrations and conflicts and problems and “growth scares” and debt binges and China worries and Fed governors. Then realize that the S&P has only had THREE back to back losing years since then. Truly an extraordinary comment on  the durability of companies inside the United States to adapt to all sorts of environments. 

Final Score: Dow +43bps, S&P500 +71bps, Nasdaq +126bps, Rus2k +178bps

News Highlights:

In case you missed this last night, $WMT had an amazing commercial that speaks to the pop culture / movie nut in me. Check this out!!




Have a good night