Bull and Baird Blog - July 21, 2016

Equities start the day lower as we do this “highs, no new highs, highs no new highs” thing every other day. You know what’s more impressive than this? Ok nothing is more impressive than that. You know what’s slightly less impressive than that stud kid? The fact that this market breakout has gone uninterrupted. When the S&P finally made a new all-time closing high on July 11th everyone and their mother was worried about a head fake. A Lebron James knee shattering juke where people get sucked in and spit out like they went thru a jet engine. Which is to be expected right? We had just spent the better part of 1.5 years going sideways so being wary of a breakout was absolutely the correct view to have. But what about today? What view should we have right now? Well, if you look around at all the various sentiment indicators we get you’d probably be inclined to be bullish. AAII Bulls are only 35% even with new all time highs (some people think this one is worthless but whatever), the BAML fund manager survey showed record levels of CASH, and if you take a gander thru various media outlets you’ll find more than your fair share of “the economy still sucks” articles. Here comes a personal anecdote that you can completely ignore if you like…you ready? The day we hit new highs I went to 4 or 5 major news outlets to see what their commentary was on the event. CNN.COM had “stocks hit new highs” as their 8th link, I mean you literally had to hunt for the story to find it.  NBC/CBS/ABC barely had any mention at all and Drudge was talking about Trump. Do you get the sense that exuberance abounds, that new highs are going to bring us a fresh “Stuart” Ameritrade ad? Does this feel like the 2000 / 2007 “everything is awesome” tops to you? It doesn’t to me, which is why I think it continues. 

After the open the market fell half a percent because “investors have trepidation with valuations at these levels”. I love quotes like that, I really do.  I mean 50 bps is basically noise on any given day but we have to have a reason my friends! So why was the market down this morning? Because it’s quiet, and when its quiet things can drift. Plenty of stocks to talk about though so let’s get to it! There was much JOY at JOY as Komatsu offered 28.30 per share for the company. EBAY rallied 11% because I sold $500 worth of kids toys on there and it cost me $100 in fees. QCOM gained 7% after reporting a beat last night. Ever seen a chart of their last few earnings reports? Looks like a Red Bull event. LUV fell 11% because owning airlines is always turbulent (I went there), SHW dropped 6% after their report because painting your kids room is impossible, just pay the $100 to someone, and INTC lost 3% because data centers are apparently a mess. You’d think with all these earnings that volume would be off the charts but it wasn’t, summer has arrived and when heat domes sit over our heads stocks be quiet. By lunch we sat on 2,165 down 0.3%. Someone call top, I dare you.

The back half was a bit more downside but a close exactly where we were at lunch. Well, 100 companies have reported in the S&P500 and I’m not sure what trends we can glean just yet. I’ve heard optimistic commentary as well as negative so who knows. Right now the EPS growth rate stands at -2% but the SALES growth rate stands at +1% and that hasn’t been positive in forever. We’ve gone 8 straight sessions without dipping below the breakout close of 2,137 and that alone is an astounding fact. The longer we tread these waters the less likely this entire thing is a sham or a mockery  or a shammockery. Imagine we churn these levels for a few more weeks; the high of that 1.5 year range will be bedrock solid support.  

Final Score:  Dow -42bps, S&P500 -36bps, Nasdaq -31bps, Rus2k -49bps

News Highlights: 

  • Succinct Summation of the Day’s Events: Bonds caught a bid, oil sold off a bit, earnings were ok but not enough to shake off a consolidation day. It happens people.
  • We are at full employment, period. Look at this quote: “Oregon and Lane County’s low unemployment rate, which has made it difficult for employers to find workers, is making it tough for Wilken. On Tuesday, only about 10 people showed up at a job fair for Home2 Suites held at the Downtown Athletic Club.”
  • Which PE ratio should you use….forward or trailing? Well this guy has an answer for you: “In the spirit of dumb alpha, then, we can say that simple trailing P/E ratios are far better value indicators than forward P/E ratios. Or as I tell my colleagues at work: Never ever use forward P/E ratios. Ever.”
  • Every advisor needs to read this link and ask these kinds of questions to their clients. Especially this one: “Good Question: What’s the optimal asset allocation? Great Question: What’s the optimal way to stick with the allocation I’ve chosen?”
  • Things Michael should’ve invented #7
  • I’m going here next week!
  • Dear mgmt. of Freds:  you guys need to rethink this
  • Link from last month that I forgot to use! 5 Word Financial Advice. Love it
  • I don’t know why, but this picture speaks to me. While the adult world sleeps, childhood wonder reigns.
  • Rule #3 in life: Don’t bat a bee’s nest. With a saw. And your shirt off.

Tonight we are going to end on the cringe-iest video I’ve ever seen.  I laughed at first but the pain experienced must be real.

https://www.youtube.com/watch?v=mMS62hTRy7o

Have a good night