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.

Markets Go Up, Markets Go Down. Its Important to Keep Perspective.

Equities start the day higher as we finally get a bounce out of the depths of market hell.  I swear it’s been FOREVER since I wrote a Friday recap but I feel compelled to for a couple reasons.  The first is that when storms rage it’s important to keep things in perspective. Markets go up, markets go down, some of the best days follow the worst days so what good is it to run around like a chicken with your head cut off?  The second is that price action like we’ve seen this week emphasizes how important it is to create a durable plan that you can stick to even when it looks like the sky is falling.  Josh Brown put it best last night “you know what conversations clients aren’t having with their advisors this week?  Basis point fees.”  Advisors earn their fees when they keep clients from making catastrophic decisions at the absolute worst time and that alone is worth MULTIPLES of what the client is paying.  One bad decision because the market corrected 5% (which it does, on average, 3.5x a year) can potentially throw huge amounts of gains into the gutter.   Look, nobody knows where the market is going to be today, tomorrow, a week from now, or a year from now.  What we are trying to do (especially the wonderful advisors here at Baird) is make high probability decisions.  Take a look at this chart which shows the probability of the market being negative on any given day.  On a 1 day basis it’s a coin clip, but if you stretch your timeline the odds of the market being negative start to plummet.  Chance of it being negative over 1 year?  26%  5 years?  12%.  30 years?  ZERO.  So as you sit there huddled with your advisor looking at the carnage in your stock account I want you to be thinking this:  isn’t it great to have someone to talk to who, instead of saying “well my gut says this is almost over” instead says “here’s what statistics tell us, let’s look at the longer run and focus on where the sun nearly always shines” because the first way of thinking has zero value whatsoever, the second way of thinking has immense value. Oh and if you don’t have someone who does that, who uses a clear, logic based investment process, send me an email, I’ll help find you one of our best here at Baird. 

After the open we went higher probably because we were oversold, but mostly because @CNBC had a “Markets in Turmoil” show last night. Now I love the good people at @CNBC, @carlquintanilla is one of my favorite follows on TWTR, but when they do these kinds of shows you know that sentiment is reaching max negativity.  @charliebilello points out that after this show runs $SPX forward returns are all kinds of Irish green.  But while we started the day to the upside it was inevitable that selling would hit the tape.  There’s a popular maxim that says “markets don’t bottom on Fridays” and that reared its ugly head around noon ET.   I guess sellers did not want to go gently into that good night my friends and by 1pm our gains were gone, poof, like my will to live walking around a Farmers market.  A bunch of banks reported but they may as well have been screaming into the wind.  JPM, WFC, C, and PNC all said various things then suffered from random price action because they are acting like macro economic indicators right now.  Alright we need to shorten this section up because literally no one is reading it.  Winners NFLX, ATVI, TTWO, V, and CRM.  Losers PNC, KEY, FCX, GE, and F.   By lunch we were hoping, praying, that the market would finally stabilize.

Which we did, kinda.   Selling stopped after lunch and a small rally got us to 2,766 where we closed up 1.4% (and right on the 200day).   That’s not bad, that’s a decent bounce, but technical damage is everywhere, we aren’t out of the woods yet.  Allow me to end on a metaphor which should tie up my thoughts from the first paragraph.   Everyone says that the market is all computers and that computers should do everything in our financial lives.  But is that true?  Should we allow them to manage us completely?  Let’s look at another heavily automated industry to see if there’s a lesson to be had there.  Airline pilots use the flight computer for nearly the entirety of a modern jet trip.  They engage it right after takeoff, let it fly most of the way, then take back the controls right before landing.  98% of the time the computer handles the workload and everyone in the back smiles while eating tiny pretzels and drinking tomato juice.  But when something goes wrong, when a light flickers a warning and the stewardess’ start looking around in abject terror you know what doesn’t handle the plane anymore?   That’s right, the computer.  And in that moment, when our need is the greatest, the salary of the pilots could be $20mm a year and they’d be worth every penny.  People matter, they always will, fear and greed will always exist in markets and the help of a professional can save you from catastrophe.  In that moment, they are worth everything to you.  Final Score:   Dow +1.1%, S&P500 +1.4%, Nasdaq +2.2%, Rus2k +0.09%  

Volume was high.  News Highlights:

I wanted to end on a link showing what it felt like to buy stocks this week. This one will do fine.

https://youtu.be/xYDsNaXyKo4

Have a good night

Opportunity Always Abounds My Friends

Equities start the day lower as Hurricane Michael stalks the Florida panhandle. Wait…this thing is a category 4? Wow, that’s a monster. If you live anywhere near landfall please be safe because when Michael turns into a hurricane things get totally wrecked. I mean just ask my wife and kids, hurricane Michael hits Whitefish Bay WI a few times a year and the wreckage is everywhere. Speaking of wreckage, have you seen the market the past few days? We are working on the 5th down day in a row and people be wondering what’s up with all the red in my account? Well my friends you’ve come to the right place, not only can you learn how to make tasty football treats but you also get World Class free market commentary. Here’s what I think is happening: I think we are going thru one of these mini bear market/stealth corrections like we saw in late 2015, early 2016. Back then it was an energy implosion, right now it’s a housing/building materials/autos implosion driven by higher input costs, higher rates, tariffs, etc. I’ve seen people blame the move in yields but if this entire thing was just a “rates freakout” then why are Utilities massively outperforming? There is no planet where a rate sensitive sector outperforms AS RATES RISE. Tech being taken to the woodshed daily does makes sense: value has ticked up vs growth and in general people sell their big winners in a panic. You don’t get +60% a year in NFLX without a few -15% weeks here and there. How long could this little correction last? Well the one in late 2015 lasted about 7 months but that was a full on earnings recession, I don’t think we’re facing that right now. These kind of moves are also good for one thing: making a shopping list of all the names you wanted to own lower and saying “here’s my chance, lemme do some homework and see if I still like it”. Opportunity always abounds my friends, you just gotta find it.

After the open we saw more red than 60k Alabama fans watching the Shining while eating Twizzlers (that may have been a little forced, work with me here, it was ugly). It felt a bit like capitulation, at its peak 87% of NYSE volume was in declining shares, back in Feb that number hit 97%.  However, it’s not like I spent my whole day selling stocks, I had plenty of buy orders too. If my thoughts in the first paragraph are correct then this is really just a scary rotation instead of a stock market peak but we’ll see, only history will tell that tale. Now look, I could list losers but it would take the rest of this blog so here’s a few for you to chew on: TIF, TWTR, RL, NFLX, FAST, and GOOS. Winners were nothing but quiet safe names. Inexpensive general merchandise (DLTR), Soup (CPB), Peanut Butter and Jelly (SJM), Cheerios (GIS), and Eggos (K). I freaking love Eggo waffles, if you don’t like Eggo waffles we legit cannot be friends. Back in the day I could eat 6 in one sitting, right now I think I could do 3 but I’d be on the struggle bus for the last one. By the way, if you’re bullish on the stock market, and you’re super smart/savvy, you do not wanna see Fastenal down this much, it’s a very important stock to keep your eyes on. By lunch we sat on 2,832, down a whopping 1.7%.  

The afternoon got worse by the minute. Down, more down, sideways then even more down.  It felt like we’d selloff every single second until the bell rang. We closed at 2,791 down over 3.3% and you can put a cap on that “the market has gone X days without a 1% selloff” stat because it’s OVER (ended at 74 days 10th longest streak ever h/t @ryandetrick). To be clear: I do not think the cycle peak for stocks is in, if this is the start of a correction then so be it but I think the bull market has gas left in its tank. Right now it’s dealing with a decline in certain sectors driven by late cycle factors and it’s coming to grips with it in an ugly way. But you know what? By one measure (7 day RSI) the S&P is the most oversold since 2012. I’m not saying it’s going to happen tomorrow but don’t be surprised by a vicious bounce. Whew….man…I gotta get out here…This is me, signing off    

Final Score:  Dow -2.8%, S&P500 -3.3%, Nasdaq -4.6%, Rus2k -2.8%.

News Highlights:

We are going to skip to the end because I’m exhausted from watching stocks implode.  I have two final links for you tonight

The first is a really boring elevator that OH MY GOD

The second….I don’t even understand what’s going on.  Someone break this down for me

Have a good night

Much Ado About Nothing

Equities start the day lower as half the world is on holiday.  What better day to make my triumphant return to writing then Columbus Day, where our bond brethren get to sleep in, and Canadian Thanksgiving when all 42 Canadians who trade stocks are out.  By the way, do we still like Columbus?  Where are we at on that?   Anyway, if you are new to the recap welcome to my homebrewed creation that tries to take a light hearted look at markets.  “Edu-tainment” is the goal here, if you want serious boring macro / micro commentary there’s lots of places to get it, here at the recap we talk stocks, jocks, economic data, pop culture, and we’re not afraid to make fun of analysts who say “great quarter guys” when a stock is down 25% pre mkt.  So let’s catch up real quick shall we?   It’s October, people get scared of October, but like my boy @ritholtz says “you shouldn’t be”.   The worry du jour is interest rates, which are spiking faster than my heartrate after a 64oz prime rib.  Should you be worried about that?  Well, again, probably not.  That being said, stocks aren’t particularly fond of how rapidly rates are rising and that’s an important distinction from the outright level of rates.  So sure, the market is spooked, toss in Italy quaking (happens every single year, I’m not kidding) and China losing a trade war and that’s the current witches brew.  Earnings start this week so let’s hope good ole fashioned fundamentals push the toxic cocktail out of our reach.  Hey, did I mention I’m on Twitter?   I’ve spent the last few months trying to grow my presence there so I could push my recap to a few thousand more people (if you are on this email distribution, you are one of 3,100!!  How about that?).   Would you kindly head on over and give me a follow?  @bullandbaird  (anyone ever play Bioshock?  You’d get that reference if you did)

 

After the open we got our third rocky day in a row as all kinds of cross currents swamped the boat.  Everyone is pointing to higher yields as scaring the stock market but you know what sectors outperformed today?   Real Estate, Utilities, and Consumer Staples.  So riddle me this Batman, why would those sectors do well if the market was deathly afraid of higher rates?   Those are defensive sectors so the risk sleuth in me thinks today’s selloff was more about Italy contagion fears than anything else (Europe had a god awful session.  Italy -2.4%, Spain -1.3%, UK -1.1%).  But if people are selling stocks on Italy worries I have a message for them…Italy worries HAPPEN EVERY SINGLE YEAR.  Ok, there, I feel better.   Everything Tech / big winner / high valuation / momentum got crushed.  To wit: $TTWO was down 2.8% today.   Nobody is selling a video game maker because they are worried about higher mortgage rates in Muncie Indiana, they are selling stocks like TTWO, AMZN, MA, NFLX, etc because those are the big winners and big winners get chucked first when it’s risk off.  As I mentioned before defensive names led the way but we also saw gains in DIS, WFC, CHK, and RRC.   By lunch we sat on 2,872, down 0.45%, hoping this level would hold.

 

Which it did…thankfully.  We closed at 2,884, down 0.03% as the market tries to come to grips with a host of late cycle worries.   Now look, just because the 10year is at 3.23% and mortgage rates are near 5% doesn’t mean the bull market is over (read my earlier article).  A lot of smart people I follow think the cycle has oomph left in it and I’m inclined to agree with them.  When we hit 2,935 a few days ago the market was over-loved and over-believed.  The spike in rates + random macro stuff was enough to cause people to hit the sell button.   That’s it, nothing more.  If you were to ask me what my view on the market was I’d bet we finish the year closer to 3k.  Hang in there, things get rocky from time to time, nothing goes straight up.  Final Score:  Dow +15bps, S&P500 -4bps, Nasdaq -67bps, Rus2k -16bps.        

 

Volume was high.  News Highlights:

We’ll end tonight with a fun loving, light hearted look at people falling over.   That’s right, a good ole fashioned Fail video.

https://youtu.be/bbNoGr-lOSA

 

 

 

Have a good night

NEW...ALL...TIME...HIGHS.

Equities start the day higher as we hit NEW…ALL…TIME…HIGHS. Man, I’ve been waiting a long time to type that sentence, so long that I forgot what it feels like. What exactly does it feel like? Well my friends imagine sitting on a beach with your toes in the sand, listening to Yacht Rock radio sippin on a cold beer. Mmmmm, that’s heaven right there (I’m gonna do a whole Yacht Rock themed recap one day). 213 days have passed, 147 trading days, since we last touched this lofty level in the S&P but guess what, that’s a good thing, what you just experienced was a correction thru time. That’s right, markets correct thru time or price, and you just lived thru the former. See all of this noise? That’s a reset of market expectations, a reset of sentiment and exactly what we needed after that blowoff top in January. What else is hitting new highs? How about Transports, small caps, an equal wtd Nasdaq, an equal wtd S&P, the Wilshire 5000, and my weight after drinking 500 white claws the past few weeks (who knew they are still 100 calories per can). I mean what’s not to like about the market right now: earnings growth has brought down valuations, all the trade war/tariff nonsense has kept bullish enthusiasm from getting out of hand, the equal weighted indices making news highs means it’s not just a few stocks, the most important piece of macro data (unemployment) is still making multi decade lows, and clients I speak with (both institutional and retail) aren’t acting like Brewster after his great uncle died (if you don’t get this reference we can’t be friends anymore). Longest bull market of all time? Who cares. All that matters is your behavior in it, that’s the one thing you can control. 

After the open we boarded the good ship Take ‘em Up as the Dow soared past 26k, the Nadaq 8k, and the S&P to 2,899. Across the board breakouts and you know what the best part of all this is? There’s no resistance anymore, we are in clean air. Discretionary, Health Care, and Tech, all booming, if we could get Industrials and Financials to join the party then a whole lotta Bears are gonna be jumping off that mountain I just showed you. Let’s move on from all this chit chat and talk stocks. AMD rose another 5% today (+150% YTD) and if you wanna see what a morse code chart looks like check this one out. What’s the record for most consecutive gaps up? Unreal. Trump made some fresh hot deal with Mexico so all the auto stocks worked (F+ 3% GM +4.5%), banks did well because economic optimism is back baby (GS+3.5%, MS +3.5%), and FANG ripped because the market was open. Losers were UAA -4%, because, like GE, it can never really get itself going, and all of the following because they’ve been up so much lately: JWN -2.5% ADSK -1.8%  KSS -2.5% and CMG -4.5%. By lunch we were quietly trading near the highs, 2,896 +0.75%. Do you even know how good Yacht Rock radio is? Are you onto this yet? If you haven’t been listening to the pearly tones of Bertie Higgins, Michael McDonald, and Christopher Cross as summer winds down then I don’t even know what to say. The canvas can do miracles.. (check my Spotify list here).

We spent the rest of the day trading sideways on the highs and if you’ve managed to avoid all the pitfalls that come with investing you are being rewarded with a white hot PnL. So what are we looking for now? What happens next? Well, again, we’d like to see Financials and Industrials catch up but we’d also like to see a retest of the old highs (around 2,870), have that hold, and then see the market put it definitively in the rear view mirror. We need to see how bullish resolve is at these lofty levels. Before we move on to the links I wanted to end this section with a brief snippet from Sen John McCain’s farewell letter. In it he says a great many things about his life and service to his country, but this one passage resonates: 

"We are three-hundred-and-twenty-five million opinionated, vociferous individuals. We argue and compete and sometimes even vilify each other in our raucous public debates. But we have always had so much more in common with each other than in disagreement. If only we remember that and give each other the benefit of the presumption that we all love our country we will get through these challenging times. We will come through them stronger than before. We always do”.

Thank you for your service Senator and for reminding me that no matter what this great Nation will endure. When I sit down at my desk my only goal is to help our clients reach theirs and I do that regardless of who sits in the Oval office or what party controls the government. I, like my fellow citizens, will do everything in our power to add to the storied history of the United States of America. 

Final Score: Dow +1%, S&P500 +0.7%, Nasdaq +0.9%, Rus2k +0.15%     

News Highlights:

We’ll end tonight on something I’ve never been able to do. No, not skydiving, solving a rubiks cube. This guy does both.

https://www.youtube.com/watch?v=cy6ERRK0EHg

Have a good night