September Bull and Baird Blog

September 16, 2013

Equities start the day higher as that guy from the Social Network bows out of the Fed Chairman race. You know when a CEO quits overnight, the stock opens up 10%, and you say to yourself “I wonder what it feels like to the guy who just left?” Now imagine the world’s largest stock market added a few hundred billion in market cap because you said “yea….maybe I’m not the right guy here.” Do you go down to your local watering hole and say “you are all ingrates. I made you richer because I’m going golfing instead of running Fed Funds.” The mind does wonder. So I guess that’s ANOTHER downside catalyst left for dead on the side of the road. What’s the bearish case right now? Taper? That and valuation right? (Oh and this, but we’ll circle back to that in our news highlights) The problem with being bearish on valuation is it’s impossible to time, there’s just no way you are going to call the exact top. Being bearish on the Taper is worse because we literally have no idea what their timetable looks like. So why stand in front of a market that wants to go higher, that continues to shrug off wars and bad politicians and made up things like a “debt ceiling fight”? Again, I’m not trying to play the role of perma-bull here, there are plenty of those on Twitter/Wall St. I’m trying to bring a little fun to an otherwise boring recap world while taking the temperature of the market. And right now its remains hot, completely resistant to antibiotics, and ready to make you sweat! Let’s do this.

After the open we went absolutely nowhere, but that ALWAYS happens on gap up moves. Look at futures from last night to about mid-way thru the session. Basically sideways. Overnight news is good enough for the rip but not incremental enough for the follow thru, fairly cookie cutter price action for a Sunday news drop. Economic data was a non-issue, inline prints from Industrial Production and Capacity Utilization brought nothing fresh to the table. Basically the first half of the day was dominated by two things: relief that Summer is over (you knew I’d work this pun in) and the shooting in Washington DC. The rally was led by exactly what you want too: Industrials / Financials / Materials, and we even saw a fresh all-time high from the Rus2k. Winners were ATI, BA, CF, ADT, and BMY. Losers AAPL (lack of any news on iPhone pre-orders really hurt), ALTR, DNR, and AN. Not many big losers though, only 16 names in the S&P were down more than 1%. By lunch we sat on 1,699, 4 pts off the high as another exchange broke (the CBOE..again). Seriously, what is the deal here, stock markets functioned for 200 years, flawlessly, only pausing for things like, I don’t know, WORLD WARS, and now they break every other week? Is there a business here I can start? How about I mix Social Media with Stock Market computer securi….yea you might not hear from me anymore. Look me up at my new home in Mallorca (my envy hit an all-time high clicking that link).

The 2nd half of the day saw a slow grind lower and we closed at 1,697, up 57bps. At one point we were trading 1,704 so what should’ve been a great day ended up just an average day. Oh well, looks like one news headline wasn’t enough to push us to new highs, guess we’ll have to wait for something else. Couple of things to keep your eye on: price action in Goldman and the Transports. Both are threatening new breakouts for 2013, which is a great signal for the good guys. Anyway, another day another brick laid on the wall of worry. For now we march on, for we know nothing else.
Final Score: Dow +77bps, S&P500 +57bps, Nasdaq -30bps, Rus2k 22bps.


News Highlights:

  • So I said I’d circle back to that Time magazine cover in the new highlights. Is that kind of thing good? No, I hate to see stuff like that. But let’s take a look at a few covers that have appeared in 2013 already. Yep. Didn’t have an effect. Yet.
  • I love a great big list of “most shorted” stocks, what’s better than fading the crowd? So for all your squeezy ideas, here you go.
  • Stories I don’t like to read and be long the stock market #45: Distressed investors that got in early have made out well, thanks largely to rising property values. But with financing plentiful and investors chasing a dwindling number of distressed properties, few bargains are left. “It's a challenge to find interesting opportunities with returns that you can feel good about,” says David Helfand, co-president of Equity Group Investments LLC, the Chicago-based investment firm headed by billionaire Sam Zell.
  • Stories I don’t like to read and be long the stock market #1. Yes #1. “We’re as busy as we’ve ever been,” said Joe Farrell, the president of Farrell Building, during a recent interview and tour of his $43 million, 17,000-square-foot home here. The estate, called the Sandcastle, features two bowling lanes, a skate ramp, onyx window frames and, just for fun, an A.T.M. regularly restocked with $20,000 in $10 bills. ATM’s in homes huh? Where are those 1500 puts trading again?
  • Is your life….just one…..more lie..(I’ll give a shoutout to anyone who can name the play that’s from, without using GOOG you cheaters)
  • How have pre-announcements been? Let’s check Factset: Q3 guidance trends have been fairly negative. According to FactSet, just over 80% of the S&P 500 companies that have provided an outlook for Q3 (largely during Q2 earnings season), have issued negative guidance. This is well above historical trends, but in line with what has been seen in recent quarters. In addition, guidance trends have had a mixed track record when it comes to the read-through for earnings season. This gets back to issues such as the extent to which expectations get reset heading into the reports, the small sample size and the lack of an adjustment for the magnitude of the revision activity.
  • And how about EPS growth? FactSet shows that the Street is currently looking for S&P 500 EPS growth of 3.5% in Q3. This is down from the 6.5% expected at the start of the quarter. Eight of the ten major sectors have seen downward revisions to their earnings growth expectations since the end of June. Consumer discretionary and financials are expected to be the biggest contributors to Q3 earnings growth, while healthcare and energy are seen as the only headwinds. Revenue is expected to grow 2.6%, down from the 3.0% forecast at the start of the quarter
  • I didn’t know it was possible to make an RV look this good.
  • Zero chance I could traverse those 5 feet.
  • Can a kick hit both crossbars and still go in?

We’ll end tonight with a wedding disaster. Now you all know I love football, and who doesn’t love going to other people’s weddings (besides everyone), so why not mix the two together? If you are this guy, and you just did this, do you have to leave? I say you do.

Have a good night.