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)

https://www.youtube.com/watch?v=cRVBLdkjXWI

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.

https://www.youtube.com/watch?v=xTqayvy3SgI&feature=youtu.be

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!!

https://www.youtube.com/watch?v=dMcBBHpzKiI

 

 

Have a good night

Markets Don't Go Up In A Straight Line

Equities start the day higher as I peek ever so cautiously out of my underground bunker. I am alive, yes, though savagely distraught and depressed at the fact that I haven’t been able to write my beloved recap during such tumultuous and trying times. Between all this insane volatility and coworkers taking vacations I’ve had to trade glorious word smithing for VWAPs at 2 cents per share. But fear not my friend, there are things afoot that will bring the glory of a quirky market writer to your inbox and potentially your city much more often!! So…have we priced in the end of the world yet? Are we still fretting over growth stocks, GE, compressed valuations, and peak earnings? Yep, looks like we are, and while I’m still bullish (this if for people who might call me a flip flopper) it’s clear that this storm isn’t over just yet. What started it? Lots of things I guess:  a dumb trade war, rising rates, input costs soaring, a housing related meltdown, green bean casserole, a mediocre Nutcracker movie, “buy the dip” dying, and good old fashioned late cycle worries. What will end it? Well my friends, that’s a question that’s tough to answer, but here’s what I think: only time can end it. We need to get thru the pain like we did in 2015-2016 (which was a bear market btw). We need to watch our account balances go down. We need to watch the Fed hike and make money more costly.  We need to marvel as FAANG drops like Michigan’s football ranking. The pain you are experiencing now is WAY BETTER than the pain of a market bubble exploding. We’d rather suffer the slings and arrows of an outrageous 10-15% correction than have to relive the Dot Com collapse or the GFC. Look…this move sucks, I feel your misery, everyone around you feels your misery, but let’s have a bit of perspective shall we? The S&P500 was up 27% last year (total return) which is, you know, a lot. If we get a flat or -3% year should that really upset us? Heck if we got a -10% year then the 2yr total return is still 17%+ right? Markets don’t go up in a straight line, the pain you are feeling is how you EARN those returns on your precious capital. 

After the open we dreaded the inevitable “let’s sell this thing and see what happens” move that’s been haunting us since October. Lo and behold the market dropped from +1.4% to +0.8% within the first few hours and a sense of gloom descended upon the citizens of Whoville. AAPL continued its painful fall and midway thru the day its market cap had fallen below that of MSFT. Yep, you heard me right, the market cap of the world’s first trillion dollar company fell below its age old competitor Microsoft and is now worth roughly $823B. I don’t even have words for that, Apple has lost more in market capitalization than the bottom 33 companies in the S&P are worth combined (roughly $179B). Two letter stocks starting with the letter G had an interesting day. GE hit a new multi year low of 7.26 and GM said they are going to lay off 15k people. Yea neither of those is the kind of thing we want to see right now. Winners: NWL, WYNN, LB, TWTR, and SCG. Losers: CPB, UAL, GIS, SJM, and CMG. Luckily we shook off that gloom and by lunch traded back near the highs, 2,669 +1.4%. You guys know what time of year it is right? Yep….time to indulge in the greatest drink known to mankind. Its good its good its good… (name the movie)

In the afternoon we landed a spacecraft on Mars. That’s right, humanity landed a spacecraft on Mars while all of us worry about a 10% correction in a 300% multi year rally. Perspective….so important. “Honey I’m worried about our NVDA, I bought it at a 500 PE and it’s selling off every day”. “Go away dear, we’re doing tests on another planet that will one day lead to its colonization.” Anyway, the market managed to close near the highs and AAPL regained its ground against MSFT so today wasn’t all that bad. That being said, the pain I mentioned earlier feels like it’s going to be with us for a while. Look, there’s two kinds of bear markets: a cyclical one (like we saw in 2015-2016) and secular one (nearly always caused by a recession). I personally don’t think a recession is imminent but I know some very smart people who are starting to become concerned. So the way I see it there’s three outcomes here: The first is that we finally shrug off all this negativity and the world recovers from its malaise and this record breaking bull market continues even if it limps along. The second is that we have a cyclical bear like we saw in 2015-2016 and then we resume the long term uptrend. The last is that the market is gearing up for a recession and a start of a fresh secular bear sometime in the next few years. Keep me in camp 1 and reminding you that markets go up and down…up and down…

Final Score:  Dow +1.46%, S&P500 +1.56%, Nasdaq +2.06%, Rus2k +1.16%  

News Highlights:

 I couldn’t decide between these two so feel free to choose between them for your final laugh:

If you have the attention span of a gnat (5 secs) check out this amazing defense (really a nice analogy to being a stock buyer right now)

If you have the attention span of my 12 year old (3 mins) check out this guy almost dying.  Sweaty palms…so sweaty.

Have a good night!

The Clown Car Revs Up For Another Trip Around The Ring

Equities start the day higher as the clown car revs up for another trip around the ring. What a week we just lived thru!! A whole load of wonky price action that pushed us up 1.8% and then down by 1.8%. Started the week at 2,767 and ended the week at 2,767. What did that really old British guy say? Sound and fury signifying nothing? We have ourselves a real live correction going on and this rolling bear market has left U.S. Equities as the last asset class generating a positive real return this year (h/t MS). Whoa…what the heck happened? What is everyone so worried about all of a sudden? Well my friends the list is long and distinguished including such fan favorites as China, Rates, Italy, and Middle Eastern geopolitics. Now you guys know I’m a simple dude, most of the things I love about life aren’t very complicated. I like walking thru leaves, eating Peanut Butter and Jelly, hearing the voice of my children, talking about Finance and markets in an easy to understand way, and sipping on 1964 Chateau Margaux. When it comes to macro analysis I also like to keep it simple because the more complex a model the more garbage it is. Jobs, Consumption, Housing, those are the things I like to watch to gauge the temperature of the economy and by proxy the stock market. Housing, along with unemployment, is one of the best leading indicators we have to gauge the health of the cycle. It has, in a lot of ways, basically imploded (it tends to peak first). Check out this tweet from last week (follow me while you’re there!) to look at the carnage. If housing has peaked (as measured by New Home Sales) recession tend to occur roughly 2 year after (h/t @ukarlewitz).  One of the legs of my trio has been kicked out and that actually concerns me. Does it make me outright bearish? No, but I find it hard to ignore housing weakness right now. All that other stuff is tertiary to the three I mentioned so let’s stay laser focused here. If Weekly Claims bottom and begin to creep higher (with continued housing issues) I’m changing my name to BearandBaird.

After the open there was no real trend to speak of given the lack of economic data and earnings. I mean this week is insane for earnings, 155 companies in $SPX report (70 on Thursday alone) but there were only 6 today. How has this season been so far? Not bad, 21% EPS growth and 7% revenue growth but that revenue number is the slowest of the year so I guess we have something else to keep an eye on. Movers and shakers were all over the place. Winners  JEC, AMD, PX, GPS, RL, and RHI. Losers NKTR, SCG, BMY, SYF, and WRK. Tech and Discretionary led the way, Real Estate and Financials fell behind. By the way, I need this lotto thing to end pronto tonto. I can’t keep doling out $5 to every group that’s going in together because I’d miss out on getting rich. What’s that? Meg and Matt from Fixed Income Asset management have a consortium going? I’m in, if they roll up in a Maserati next Friday I won’t be able to live with myself. By lunch we were legit going nowhere, 2.758 down a whopping 0.3%. 

The rest of the session brought nothing, in fact it was one of those totally forgettable days in my life. A lot like attending a Chelsea soccer match tbh. I do think the market has to retest that low from Oct 11 (~2710) because that’s just how corrections work. Big steep selloff, people wonder if the bull market is over, big bounce (we are here), a major retest (probably this week) and then the rally resumes post mid-terms. That feels like the playbook to me. Whether housing is a major problem only time will tell, there’s no way to know that in real time so it’s worth keeping an eye on but that’s about it.  Still bullish on year end here. 

Final Score:  Dow -50bps, S&P500 -43bps, Nasdaq +26bps, Rus2k -16bps. 

News Highlights:

Ok look, this video really made me laugh. I’d say it’s one of the funniest video’s I’ve ever had BUT.…BUT….you have to have sound. Must have sound. It’s dumb if you don’t have sound.  So put in those Ear pods or turn up the speaker on your 10 year computer that barely runs and your IT will never replace because I think you’ll like this.

https://www.youtube.com/watch?v=r1qTnFT2lTs&feature=youtu.be

Have a great night.