Bull and Baird Blog - July 19, 2016

Equities start the day lower as we go a FULL DAY without a new high. Remember when we used to laugh at the prospect of new highs? I do. I remember all those days of sideways grinding in 2015 and most of 2016, God I hope we never see those again. So part of my 42yr old midlife crisis involves listening to vast amounts of EDM. Now EDM is usually the purview of millennials, as a music genre it typically doesn’t speak to a middle aged father of 2. Beat drops, flashing lights, jumping up and down to music with no words, not your typical suburban fare. But not me my friends. I ready to embrace glow sticks and nightclubs because childlike youth is fading faster than my hair color. Where was I going with this? Oh yea, so my new favorite song is “Don’t let me Down” by the Chainsmokers and while I was blasting it in my 2006 grocery getter last night one of the lyrics seemed appropriate for this market environment:  “It’s in my head, darling I hope that you’ll be here, when I need you the most”. Never before have we needed the market to hang in there this much. Never have we needed earnings and economic data to support valuations this badly. Never have I tried to use an EDM song lyric to write a market related recap. I think you get what I’m trying to say though, we are basically cultivating a tiny seedling, one that has grown thru an amazing amount of thorns and thickets and bugs and weeds. If this breakout fails you will hear more top calls than a group of Australians on the summit of Everest (that was awful). So dear CEOs and CFOs of the 500 S&P companies: Don’t let me down down down.  

After the open we tried to tread carefully thru the risks but the market had already decided it was going to be a down day. Lots of people on Twitter were talking about plagiarizing speeches and where to find the biggest Charizard but they should’ve been talking about NFLX, IBM, and HUM. NFLX earnings whiffed because intl subs were weak, IBM fell slightly because it’s a behemoth that goes nowhere, and HUM lost 4% because the U.S. Gov’t might block all their hopes and dreams. Earnings should set the tone for the next few weeks so the last thing we want to see is big names like those struggling. Goldman also reported this morning and while it looked like a beat the stock fell 1%. Financials…I mean we want to see these do well but the sheer number of headwinds they face boggles the mind. Negative rates / Regulations / Investment Banking slowdowns / a lack of quality candy when you open a checking account they just never end. That being said, sentiment is so bad in this sector that you have to wonder if it’s all priced in (the chart of XLF isn’t completely awful). Winners were EMC, MCD (apparently MCD is going to have a few pokestop’s in Japan, this thing is just getting started), JNJ, CMG, and FFIV so all was not lost my friends. By lunch we sat on 2,159, down 30bps, taking a pause from this “new highs” thing that’s been all the rage lately.

The afternoon brought your typical snoozy price action and we closed at 2,163, down 14 bps. In the end we saw a very tight trading range so let’s not make a mountain out of a molehill. Instead let’s hit up this link for 5 rebuttals to bearish arguments then go outside and prepare for the 100 degree weather coming our way. Would you rather have super hot summers or super cold winters? I think I’d take hot summers because walking to your car in -30 sucks. I mean who would actually choose the cold over the hot? Anyone?

Final Score: Dow +14bps, S&P500 -14bps, Nasdaq -38bps, Rus2k -62bps. 

Volume was low. Our desk was better to buy. Buying in Industrials and Tech. Selling in Health Care and Semis. Shorting in Materials.

News Highlights:  

  • Succinct Summation of the Day’s Events: Grinding on the highs, waiting for earnings to really get going. Volumes are slowing as the dog days of summer kick in.
  • LPL had a nice look at what it means to buy at new all-time highs: “Analysis of the S&P 500 Index indicates that from the date of any given all-time high, the index has historically hit another all-time high within one month 91% of the time. Extending this time frame to three months increases those odds to over 97%, and extending to one year the odds approach 99%. Based on those odds, you have a very good chance of seeing another all-time high pretty soon after you buy on one."
  • Michael Batnick listed his investment mentors along with the lessons he learned from them. He chose mine (Howard marks) with this awesome quote: "First level thinking says 'It’s a good company; let’s buy the stock.' Second-level thinking says, 'It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.'”
  • The theme of “This is a lot like 1998 and not 2008” is growing rapidly: “The degree of skepticism and skittishness in this market is palpable. But bubbles don’t form overnight. They develop slowly at first and then all at once. I am not sure that’s where we’re headed here, but I still think this environment looks a lot more like 1998 than 2008.”
  • And this is EXACTLY why we need good financial advisors: “When it comes to a long-term investment strategy, more people are sticking with a zero-risk, zero-return mentality. A surprising 54 million Americans said they preferred cash investments for money they did not need for 10 years or more, according to a recent report by Bankrate.com. Younger millennials, or those at ages 18 to 25, overwhelmingly chose cash as their preferred investment for the money they would not need for at least 10 years. That was by more than a 2-to-1 margin over the next highest category, real estate”  Guys..please…go find some millennials and teach them!!
  • What companies are on EPIC earnings losing streaks? Bespoke takes a look at companies that have opened lower in price following at LEAST their last 6 quarterly reports. What are a few of them? ACAT  QCOM  BBOX  BRS  EAT  DAKT  BXP
  • I'm actually hiking here next week!
  • How long does this take to learn?
  • What is it about pools and people doing dumb stuff?
  • Why did the Concorde fail? As an aviation nut this kind of stuff speaks to me!
  • Sir…do you believe this car is roadworthy? Yes, yes I do

So all your wakeboarders and boat owners out there…..ever try this?  I mean what happens if you fail…


Have a good night