Bull and Baird Blog - April 25, 2016

Equities start the day higher as the Red Woman shocks the world. Look, I’m all about this whole “she’s ancient and magical and powerful” vibe but come on now, can’t you give us a headshot or something? Game of Thrones is officially back and if you have been reading my recap over the years you’d know that I excel at one thing: spoiling the heck out of my London colleagues. Hey, its 2016, if you can’t watch #GoT on Sunday night then you are going to be spoiled, I’m sorry but it’s true. Literally the whole world talks about it over coffee and donuts so don’t come here expecting a spoiler free zone. Ok, now that the ground rules for Season 6 are out of the way let’s do a quick “big picture” update shall we? The best way to describe the past few months is that we’ve gone thru a “Great Stabilization.” Here are all the things that stopped going down: Oil, China, Credit, Transports, Europe, and Sentiment. Once those stopped acting like death we saw R&R kick in: Risk and Rotation. People stopped piling into Utilities, Telecom, and Staples and started rotating into risky sectors like Energy, Materials, and Industrials (Financials too but everyone hated that sector like Ramsay Bolton). Headwinds then turned into tailwinds as the dollar stopped going up and commodities stopped going down. So does that mean our economic malaise is about to end? That 2-3% GDP growth and mid 50s PMIs are a thing of the past? Nope, not at all. It just means that sentiment about the world ending has abated and that change in the winds was enough to drive us to 2,100. The area above 2,100 is a bigger task though, like taking Winterfell back or dating one of those Sand Snakes (they are literally the worst part about this TV show.  Just awful). New highs are composed of earnings growth and Europe hitting its stride. It’s about China reigniting its animal spirits and Japan getting back on track. What I’m saying is that we could be back to the grind. Back to this 2,050 – 2,125 area that we spent most of last year wallowing in. Risk and Rotation are good but we need a bit more to take back Kings Landing.

After the open we saw a bit of “un-rotation”, if that’s even a word. Heck, I don’t care if it is or not, I’m using it. Boom, how powerless are you! Energy, Materials, and Industrials were the big losers while Staples, Utilities, and Telecom the big winners. I guess we could say “profit taking” but can you profit take a giant rotation trade? Probably not. Anyway, it was quiet because we have a Fed meeting on Wednesday. This always happens during Fed weeks, all the attention gets drawn to the actual announcement and away from everywhere else so volumes were running about 10% below normal. New Home Sales missed but let’s turn to Bill for commentary on that sector because there’s no one better. So yea, other than a small unwind of a popular trade there really wasn’t much to talk about in the morning. I could keep trying to put you to sleep with random commentary but instead I say we look at a ridiculous golf trick shot. I bet I can do this, need to find a volunteer at Baird and get it done. 

The rest of the day was a non-event and we closed slightly lower for the session. Blah, what a boring Monday. You know what did happen though, we got a Golden Cross in the S&P with both averages up sloping! Wow that sounds fancy right? I mean I don’t know about you but that’s better than the Cubs winning the World Series and the Bears pounding Green Bay by 50. Actually no it isn’t but I’m trying to be as dramatic as possible. Here, let Bespoke tell you what happens after just such an occurrence. If we got dovish commentary out of the Fed, further gains in Transports/small caps, and a week of solid earnings we might just touch those old highs! But beyond there, man I don’t know, maybe if I call Bear Market again we will rally another 13%?  Look I’ll do it, don’t tempt me. I’m willing to destroy my letter writing reputation so your stocks go up, that’s how committed I am here.

  Final Score  Dow -15bps, S&P500 -18bps, Nasdaq -21ps, Rus2k -18bps

News Highlights:

  • Succinct Summation of the Day’s Events: Digestion day I guess. Small selling in risky sectors but nothing major. Plenty of talk about necklaces and how dogs magically disappear during sword fights. 
  • There will ALWAYS be a need for good advisors: “Unfortunately, software cannot, on its own, solve for this elemental feature of the human condition. Nor can an average advisor. This is work that only a great advisor can do.  Knowing a client personally enough to anticipate what market environments will trigger their worst impulses toward either crippling fear or reckless greed is a task uniquely suited to emotionally intelligent, skilled human advisors. And for a wealthy investor with a lot to lose, this relationship becomes indispensable. Major emotional mistakes in the investing realm are not calculated in basis points, they are tallied in the hundreds of thousands of dollars, or, in extreme cases, in the millions.”
  • Tom Lee…still a bull (and been dead on by the way): "This is almost the exact opposite seen in May 2015 when the new highs then failed," explained Lee. "We expect to see new highs by the end of May and the equities to decisively sustain above that."
  • This hurt right?  Had to
  • Guess what…if you invest in stocks you will spend the vast majority of your time UNDER the highs.  Deal with it (great post, definitely give this guy your click). “I used monthly total returns on stocks for these numbers and found that an investor would have been down from a prior peak over 70% of the time. The majority of your time invested in stocks could be spent thinking about how you coulda, shoulda, woulda sold at that previous high price”
  • You know who is a HUGE investor in Nikkei 225 stocks?  The BoJ. Guess this one answers the question of “would central banks buying equities cause a huge bull market”  “While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data.” 
  • Absolutely gorgeous
  • So the answer is “ehhhh, probably not
  • I have an AWESOME business idea but these stupid child labor laws

For tonight’s final link we are going rope swinging!  500 feet above the ocean! 


Have a good night