Bull and Baird Blog - August 19, 2014

Equities start the day higher as global investors continue to do this. Great picture huh? Could use that thing in a lot of aspects of my life. So why is everyone bashing their head against the wall? I think the main reason is the complete and utter lack of narrative around this tape. The buy side is struggling to understand why the market never corrects and seems to shrug off global fears. The sell side is struggling to explain why volume remains persistently low in almost every tradeable security. Well, lucky for you Uncle Mike has come back to do some expository explanation-ating. The best argument I’ve seen recently for why the market refuses to selloff comes from one of my favorite bloggers, Dr Yardeni. In his latest piece he says investors have “anxiety fatigue,” which basically means they are tired of worrying about things. Every freaking event that hits the tape is met with a chorus of “this is it, the top is in, sell everything,” so when there is no follow thru everyone sighs and starts buying again (and get relentlessly rewarded too). As for volume, well I give on this one. I don’t have any reasonable explanations left for why the world doesn’t seem to care about trading anymore. It is what it is, there just isn’t a lot of volume and that’s gonna be hard for an entire industry. Will it come back? I don’t know, and neither does anyone else. It’s just the world we occupy now, adapt or die. Ok, let’s see if Tuesday brought anything funky fresh to discuss.

After the open it was nothing but videos of people pouring buckets of ice over their head. Wait, I’m sorry, that’s just the internet (I do love this awareness campaign though, it amazes me what social media can do. People can be motivated to do great things with a simple act). After the open it was nothing but up and to the right. The S&P spent all morning long punishing those who didn’t buy the dip…AGAIN. When I said this recent price action looked like late Jan / early Feb it appears I was spot on. Back then it was Turkey and the Ukraine. Now it’s just the Ukraine. Half the problems my friends…take ‘em up! Couple decent economic data points with a beat on Housing Starts and an inline CPI. Inflationistas are going to have to wait for another day to claim victory and the rebound in housing appears to be intact. Winners  AAPL, TJX, HD, LEN, DHI, URBN ,and ROST. All consumer all the time! Losers MNK, HSP, ICE, VIAB, and IR. But the biggest loser in the S&P was only down 342 lbs. Wait.. 3.42% sorry. By lunch we sat on 1,980, up 0.4%. All 63 points we lost have been completely recovered…just amazing. Here’s a question for you, what’s been a bigger destroyer of shorts? Our current rally or the years before diapers were invented. So hard to know.

The afternoon saw more of the same and by the close we had managed to put together a tasty little rally. 1,981, up 0.5%. Not bad. Anyway, I want to finish today’s piece with a look at what really matters in stock markets: earnings. Were the previous one’s good? Bad? Let’s ask Factset shall we?  “With ~94% of the S&P 500 having now reported results for Q2, 73% have beat consensus EPS expectations. This is slightly ahead of both Q1 and the four-quarter trailing average. Season-to-date, the revenue beat rate is running at 64%. This is ahead of the 53% seen in Q1 and the four-quarter trailing average of 55%. The four-year average is 57%.”   Well that sounds ok right?  What else do you have for us?  “According to FactSet, the blended growth rate for Q2 S&P 500 EPS currently stands at 7.6%. This is still well ahead of the 4.9% expected at the end of June, the 6.8% forecast at the end of March and the four-quarter trailing average of 4.1%. The blended growth rate for S&P 500 revenue is 4.4%, better than the 2.7% growth recorded in Q1 and ahead of the 2.1% four-quarter trailing average.”  There you have it people, earnings are doing fine. SO STOP SELLING ON STUPID STUFF LIKE PUTIN AND THE MIDDLE EAST. Whew, man I feel better about venting there.  

Final Score:   Dow +48bps, S&P500 +50bps, Nasdaq +49bps, Rus2k +35bps.

News Highlights:

  • Succinct Summation of the Day’s Events:  Everyone who missed the dip is mad, had to pile back in. Economic data right down the middle, Fed won’t need to rush tightening.  AAPL hit a new all-time high because my 8yr old wants the iphone 6.
  • I’m absolutely speechless over this.   No words…they should’ve sent a poet (no one gets that reference). And guess what? You can actually rent it.
  • For all my PWM peeps out there, make this chart part of your pitchbook to young clients (from Josh Brown):  “If I only had thirty seconds to teach a young person about asset allocation, I probably wouldn’t bother with anything written. I’d also dispense with any sort of formula, equation or model. Instead, I’d come armed with just one chart and force my erstwhile pupil to spend the entire half-minute staring at it.”
  • Today’s “Signs of the Top” is the most ridiculous thing I’ve seen in a long time. Bone Marrow alcohol shots. 
  • Here’s the perspective people miss when they moan “there’s no growth at all”:  And recent history has been a period of incredible growth. The period from 1950-1990 was the highest on record. The period from 1990-2012 was lower than the 1950-1990 period, but still substantially higher than any period before that – by a huge margin.  So yes, we might be in a period of sub-par growth relative to the 1950-1990 period, but when you look at the long-term trends in place you can see that we’re actually still far better off than we were just a lifetime ago.  Sure, things aren’t as good as they were just a few decades ago, but they aren’t anywhere close to being as bad as they were several centuries ago. We live in a period of incredible global expansion and output.
  • If you are like me, and suck at making cheeseburgers, this link will set you straight.  I tried it out and it worked like magic.
  • More people in finance need to think like Barry.  This article is just awesome.   The article notes that the “S&P 500 has nearly tripled since March 2009” but doesn't mention this follows a 57 percent drop. Are rallies of this magnitude common or uncommon following declines of that size? What is the best way to provide context for this move: should it be from the earlier low mark, or would a longer timeline provide better perspective?  Every single “the mkt is overvalued” or “this occurs when this occurs” needs to be met with incredible skepticism and what the author calls “logical skepticism”
  • How does this still occur?  Why has no startup disrupted this?  I’m baffled.  Someone please tell me.

Since I mentioned all those ice bucket videos earlier we may as well do the Ice Bucket Fail Video!  Boom, I’m back baby! 


Have a good night