Bull and Baird Blog - January 12, 2016

Equities start the day higher as Chicken Little reigns. Ok, let’s get serious folks, what in the heck is happening right now? Who turned up the bear volume to 50 and spiked the punch with depressants? Let me point you to the following three links before trying to make a completely unfounded conclusion based off very little data and a few random anecdotes (really my forte). 1)  RBS says sell everything, buy a bunker, China is going to nuke the world. 2)  JPM says “sell any rally”. 3)  Goldman says “stospxcks may fall more and then maybe you buy”.  Yep, that’s where sentiment is at my friends, in the dumpster face down licking the garbage water (eww). So here’s a question for all you would be doomsayers and world enders: When’s the last time people screamed “SELL EVERYTHING” at the top of a Bull market? Has that ever happened? Here’s another deep thought for you: When’s the last time a bull market gave you a YEAR to get out at the top? If the 2,100 area ends up being the end of this run you had all of 2015 to get out in a great sideways grind. Has that ever happened? Now I get that it’s different every time and it’s entirely possible that a financial crisis in China could grind the world to a complete halt. I mean if factory workers buying mansions in 2007 can do it I guess a nation that built bridges to nowhere and cities that no one lives in can have their version too. But something claws at the back of my head saying “is the top ever called this loudly? Don’t bull markets end on euphoria and not fear?” Needless to say it’s an interesting time to be in the market, gone are the sideways days of summer and the quiet solitude of a December day. We have ourselves a full blown bucking bronco, strap in for a crazy 2016. 

After the open we got the mother of all….well this. In fact if you want to sum up overnight futures action as well as the first 30 mins of trading that picture would be all you need. But guess what, oil had a different plan and as it sunk it took equities along with it (evergreen sentence). Up 1.2% at 930am ET?  Flat by noon. Down by 1pm. Sigh. Being bullish right now feels a lot like this. If we are to escape this gaping maw of negativity it’s going to take a few things 1)  oil to stop acting like it got its iPad taken away (things you’d never hear in 1962) 2)  The dollar to stop acting like Superman 3) High Yield spreads to settle down for a bit and 4) Transports to stop acting like they sell buggy whips. Will any of those happen anytime soon? Of course not which is why every time the market lifts its head it gets hit with a bat.  Are we oversold? Yep, and I’m sure we’ll see a faceripping rally soon it just didn’t happen today. AA reported last night and said the magic words you know and love “we beat EPS but missed on revs”. Get ready to hear that phrase about 1.8 million times over the next few weeks (the stock fell 10%). What else stunk up the joint? Gee I wonder…maybe…oh I don’t know…energy names? Materials maybe?  Just spitballing here, let’s take a look.  WMB -11%?  SWN -10%?  FCX -4.5%? Just another day at the office. Any winners at all? CTSH, ANTM, BSX, and MDT. Oil cracked the $30 mark around 2:20pm ET and it felt like the afternoon would be nothing but further downside. Man…I already miss the bull market…now we are going to have to deal with doomsayers cheering from every street corner and touting how they were “right”.  Even though they’ve been calling this for the past 200%...... 

Luckily oil bottomed right after it cracked $30 and managed to climb back up to the $30.50 area before the close. Since the S&P has a 1.000000000 correlation to crude (some days its high yield but I digress) we managed to climb back into the green. By the time we prepped ourselves to walk out into 7 degree cold (ahhh Midwest winters) the S&P had managed to eek out a 0.8% gain for the session. So let’s talk very briefly about sentiment because not only has turned into absolute muck, but it’s taken on a tone I haven’t seen for a long time. There are numerous recession calls (some saying as high as a 50% chance) as well as major Wall St firms calling for people to run for the hills. Now maybe they are right, there are some very smart people who are cautious and that demands our attention. I just don’t know about a market topping on bad news. China / Energy / a Cmdty bust may very well be the end of the 2009 - ? bull market but if it is, people are calling it real time. Does that ever occur? Oh and has the FIRST rate hike of a tightening cycle ever called the absolute top? I believe the answer is no. Anyway, this market has turned as sour as a patch of kids so we REALLY need earnings to be better than expected. Dear companies, please beat top line.

Final Score:  Dow +72bps, S&P500 +78bps, Nasdaq +103bps, Rus2k +27bps.    

News Highlights: 

  • Succinct Summation of the Day’s Events:  Bounced overnight because we’re down something like 93 days in a row.   Crude took the wheel and drove us into a ditch but we managed to get ourselves out by the close.
  • Bill isn’t super worried right now about 2016 GDP (I tend to agree with nearly everything he writes)  The good news is that all of the positives that led to the pickup in activity since 2013 are still present - the housing recovery is ongoing, state and local government austerity is over (and now Federal austerity is over), household balance sheets are in much better shape and household deleveraging is over, and commercial real estate (CRE) investment (ex-energy) and public construction will both probably make further positive contributions in 2016.
  • Neither is UBS"Rather than try to make sense of every odd data point, it may be helpful to focus on more timely, less managed data sets that could provide an early warning of economic trouble in the United States," he argues in a recent note to clients.  In particular, Matus writes that he has "three favorite canaries" that he keeps an eye on to get a sense of what's going on in the US economy: 1) the ISM services index, 2) initial unemployment insurance claims, and 3) bank lending.  "Significant economic weakness would likely show across these indicators in a timely way, something we see no sign of at the present," he writes.
  • Nor is another of my favorite writers (see, it isn’t all doom and gloom out there):  Momentum should carry equities lower, at least intra-week. Important support levels have been broken; these are now first resistance. Breadth is washed out, similar to past lows, and investor sentiment is now very bearish. It's time to be on the lookout for the formation of a base and at least a temporary bounce higher.
  • Marc Faber is worried though.   Actually he’s worried every year about the exact same thing
  • Coming from AMZN soon :  schools, hospitals, drug stores, and movie theaters!!  Amazon Student and Amazon Prime members at Penn will get Free Same-Day Pickup on over two million items when shipped to the Amazon@Penn location.  Opening in Spring 2016, this 3,558 square foot space will be strategically located in 1920 Commons, the University’s largest dining facility, with easy access for Penn students whether they live on or off campus. In addition to mobile-enabled, self-service package pick up, it will be the first Amazon pickup location to feature communal work spaces with interactive media pods where students can connect their laptops and mobile devices to TV monitors for presentations, brainstorming, studying, and collaborating. Additionally, Amazon Student and Prime members will receive Free Same-Day Pickup for orders placed by noon and Free One-Day Pickup for orders placed by 10PM. 
  • How about that Fed Hedge fund….nice work guys!    The regional Federal Reserve banks paid a record $97.7 billion in profits to the Treasury in 2015, according to U.S. central bank results released on Monday.  The figure tops the then-record $96.9 billion that the Fed turned over to the U.S. government in 2014.
  • I wonder what hurts more, owning energy names or this
  • If you have to go to the bathroom in Switzerland they got your covered….with an incredible view!!

 We’ll end tonight with a pig slaughter.  Look, I love bacon you love bacon we all love bacon.  Pigs have to die in order to eat the bacony goodness.   Well most pigs…not this one  (What the heck happens here)



Have a  good night