July Bull and Baird Blog

July 8, 2013

Equities start the day higher as the Great summer rotation continues. So it’s been awhile right? Recaps have been as scarce as British Wimbledon Champions. Actually I decided I wasn’t going to write again until Twinkies came back and Andy Murray won so I guess it’s time to rock this market commentary thing once again. So where do we go from here? First let’s take a quick peek at the big picture. 1) Bonds imploding 2) Cmdtys imploding 3) EM imploding 4) US economy growing and 5) stocks humming. If you are Bernanke aren’t you happy with all of that? You’ve re adjusted the bond market and strengthened the dollar with little impact on Equities. Crazy. So what’s up for the 2nd half? Well I think more of the same, for a couple of reasons. First and foremost is the fact that all of the money sitting in bonds and cmtdys and EM has to go somewhere. There are only so many deep, liquid places to park massive amounts of capital. I guess it could sit in cash but do you really think that’s going to happen if stocks remain firm? Second, and more importantly, the US economy is growing. Not enormously, and not without headwinds, but its growing. Employment and Housing, the two pillars we’ve talked about all year, are still trending upward. Take a look at one of the BEST leading indicators of an economy..residential investment. That chart is subject to a one quarter lag but I’d bet my near mint Spiderman action figure that it’ll look even better on the next release. So to sum up: Bond market jitters, deep liquid equities, an economy that is growing, a helpful Fed…..where else would you wanna be for the 2nd half?

After the open it felt like July 4th...again…but this time there was no hot dogs or warm beer just an extremely quiet and listless market. Stocks were higher but only because Europe put in a good day, we had no economic data or any other catalyst that was responsible for the gains. Earnings are about to ramp up so I guess that’s one reason why it was so slow (make sure you bookmark this link to know when the real fireworks go off). Any decent movers? Not really, utilities did well but you can chalk that up to deceased cats bouncing. At 1pm ET on Friday, the day after a major holiday and the day before a weekend, the market had traded 2.8B shares. At 1pm ET today, the market had traded 2.9B shares. That’s all you need to know about this morning. Yikes. By lunch we sat on 1,638, up 0.4%.
The back half of the day was as exciting as the Greater Toledo Livestock and Quilt Expo and we closed right where we were at lunch, 1,638. There was one bright spot in that both bonds and stocks rallied so at least it’s not an “either or” market right now. Basically the next leg is going to come down to earnings and frankly that’s how it should be. We are moving from a “good news is bad because it means less Fed” type of market to a “good news means things really are improving” and that would be a sea change in sentiment. Remember those days? Back yonder? When stocks actually moved on economic data / earnings and not what Bernanke had for breakfast? I do (briefly)…let’s hope we truly are moving in that direction. Final Score: Dow +59bps, S&P500 +53bps, Nasdaq +10bps, Rus2k +37bps.

News Highlights:

  • Great chart here from @JPM about what works after monetary tightening begins.
  • Let’s just say we aren’t expecting blockbuster earnings this Quarter: “Out of the 108 companies that have released forecasts, 87 have projected earnings below consensus estimates, according to FactSet. That's the highest number since the data provider started keeping records in 2006”. That being said, this could easily be one of those “jump over a broomstick” situations where even mediocre earnings look good. I like the setup here..
  • I also love the fact that people STILL hate stocks: “Bank of America Merrill Lynch tracks the suggested allocation to stocks at Wall Street firms, and while that target recently ticked up to a 13-month high near 49.8%, it's still well below the long-term average of between 60% and 65%. Endowments like Harvard's are suffering lousy returns, and pensions that are underinvested in stocks are still catching up. A mid-June survey of 1,022 Charles Schwab customers showed nearly one in five has moved money into cash over the past three months. And just 49% think it's a good time to invest in the stock market”
  • Should we be worried about housing now that rates are rising? Let’s see what my guy has to say: “My view is rising rates might slow price increases but not lead to a decline in prices (other than some seasonal declines). As far as the housing recovery (residential investment such as housing starts and new home sales), I think rising mortgage rates will have a minimal impact. Nice.
  • You know what sad? This could actually happen.
  • So I got back into the gym the other day. If you wanna give me some pointers I could probably use them.
  • Someone needs to put a golf course in there, charge $1000 a round.
  • 4 Charts to track for the timing of Fed tapering. Keep watching these. “It has only been just over two weeks since the FOMC press conference, and all of the data has been worse than the FOMC forecasts (GDP revised down, unemployment rate at high end, prices below forecast). It would be a stretch to say the incoming data has been "broadly inconsistent" with the June FOMC projections, but clearly the economy will have to pickup before the FOMC would meet their "broadly consistent" goal and start to taper QE3 purchases in December."
  • Tell me you aren’t dying to try these? Mac N Cheese sandwiches in a tomato soup shot glass? Wow. Definitely making for my next football party.

We’re gonna end tonight with a good ole fashioned Fail video. It’s a slow day, may as well try to laugh it off.


Have a good night.