Bull and Baird Blog - January 17, 2014

Equities start the day flat as a crockpot of earnings provides little direction. Since there was no dramatic market movement overnight I want to use this space to talk about online shopping (bet you weren’t expecting that huh). Remember last December when $UPS broke down saying “we have too many packages in our system, stop buying so much stuff you heathens”? We heard from them this morning when they hit us with a negative pre-announcement. The company blamed “a shorter peak season” and an “unprecedented level of online shopping.” Is that right? Unprecedented you say? Hmmm…let’s go Sherlock for a second and try to figure out what happened. $BBY held a 25% off sale on its stock yesterday blaming a weak holiday season for ugly comps, i.e. no one was in their stores. Couple that with the fact that all kinds of consumer stocks are acting like they sold Ebola over Christmas and we have a weird situation on our hands. Bricks and mortar are warning….UPS has too many packages….my 5yr old daughter knows how to surf the toy section of Amazon…my backyard looks like a cardboard factory….I think you know where I’m going here. Malcolm Gladwell wrote a great book called “Tipping Point” in which he discusses how subtle events kick off massive changes. I think 2013 will be known as the tipping point for online shopping, the year in which bricks and mortar suffered a fatal blow. This UPS miss is a “good miss”...think about it: they had too many packages, the parcel volume overwhelmed one of the best logistics companies ever created in the history of mankind. So they probably needed to hire extra workers and more planes and more trucks to get them thru the small intestine. That hurts EPS so they warn on profitability. You think they’ll make the same mistake next year? I don’t. Who else is the big winner? You know the answer to that so I won’t insult you. Big things happened in Dec 2013, let’s find a way to make money off it.

After the open we spent the first half trading lower off wonky earnings. COF, INTC, BK, GE…disparate companies whose earnings just didn’t reach that magical level of “I made the stock market happy.” You know what company did rally today? AMZN! Tell ‘em what they’ve won johnny! Well…yes….you’ve won a lifetime pass to never having to report positive EPS because you are putting every retailer into the ground! Congratulations and enjoy your ride to the top! Decent macro data today from JOLTs and Housings starts. JOLTs showed 4 mil openings, the highest level since early 2008, but I guess these jobs are like nuclear engineer or sub atomic particle mopper because our unemployment rate remains stubbornly high. 4 million huh? What else happened? EA led all gainers (+11%) because they finally patched Battlefield 4 (crashed more than biotech stocks), AXP was right behind off earnings (+3.6%), MS also off earnings (+4%), and V because they are in full on secular growth mode (+4%). Losers (other than the previously mentioned one’s) were SLM (earnings), BBY (you know why), and EW (competitor product approved by FDA). By lunch we sat on unchanged, which was remarkable given some of these single stock moves.

 

We sold off in the afternoon and only a last minute pop kept us from the gutter. By the time the bell rang we hovered around 1,838, down 39bps. Not exactly a catastrophe but not the way I had hoped we’d finish. UPS nearly closed flat on the day but I’ve already beaten that horse for 250 words so I’ll let history take over from here. We’re a hop, skip, and a jump away from all-time highs so let’s see what next week brings before we ramp up the short book. Are earnings off to a good start? Kind of. Should we be optimistic? Yea, I don’t see why not. Could that change next week? Absolutely, and if it does then we re-assess our views. What else is there to say? Let’s not overcomplicate this before a long weekend!
Final Score: Dow +25bps, S&P500 -39bps, Nasdaq -55bps, Rus2k -42bps.

 

News Highlights:

 

Since it’s Friday and you don’t want a mouthful of boring links we’ll skip right to the big finish.

 

Tonight I’m going to make your palms sweat. There is no way you’ll be able to watch this without squirming.

 

http://youtu.be/loGM3VvpsOE

 

Have a good night.