Bull and Baird Blog - October 24, 2016

Equities start the day higher as companies in the U.S. go on a shopping spree! Holy M&A Monday Batman, did you see how many deals were just announced? First off the good people at AT&T are so enamored with Jon Snow that they just had to have Time Warner Inc. Look, I get it, you wanna know whether Snow fights his way to the Iron Throne, so do I, but you just paid $85.4B to find out early. I mean you couldn’t wait a few years like the rest of us? Management of Rockwell Collins, headquartered in the fantastic city of Cedar Rapids Iowa, woke up today ready to acquire B/E Aerospace because lie flat seats and toilet valves are the new killing it. $6.4B? Collins was ready to spend. A few states over lies the great company of TD Ameritrade and in their Omaha Nebraska headquarters they announced they would like to acquire Scottrade Financial services for $4B combining two of the largest online brokerages into one. Wait…consolidation in the Financial Services sector? No way. Three giant deals that tell me U.S. companies are out there ready to acquire to fuel their growth. Is that a sign of a market top? No, stop saying that. If I read one more person say “but..but…AOL and Time Warner was the top”  I’ll start blocking everyone. M&A can be a good sign not a bad sign. Would you rather these companies keep buying their own stock or hoarding cash? You can’t have it both ways! The United States has some of the most vibrant, successful, and innovative companies in the world. Our economy is doing fine and the market is not a bubble. There, I said it. Have at me. Did I mention I was at Game 6 on Saturday in Chicago? I'm going to go ahead and put that in my top 5 days of all time. Meeting my wife, having my two kids, getting hired at Baird (the most shameless thing I’ve ever written), and watching the Cubs win their first pennant since we dropped a nuclear bomb on Japan. Are you ready for the World Series? Do you want to see game 3 in Chicago on Friday? Standing room only is $2000.

After the open, to be honest, it seemed kinda dead. We traded sideways with a slightly negative bias and all the gains were pretty much locked in by the time we sat down. European PMIs were better than expected and futures jumped around 3am ET to the 2,146 level. But they sat right there for nearly the entire session. Why? Because the election is near and earnings are just ok and macro data is just ok and why would anyone make a move before November 8? Volumes in October are running unusually low and the only thing we could possibly blame that on is Trump and Clinton. 2,150 on the S&P500? Can’t imagine we go +/- 1% from there for the next two weeks. Other than deal stocks winners were NVDA, QRVO, SYMC, ADS, and KMX. Losers were CHK, DVA, KMB, RIG, and SWN (yea oil was lower). New ALL TIME highs from the following: FB   GOOG  ADBE   ATVI  PYPL  MA  MSFT. Those are some big companies to be making all-time highs in a market up 4% YTD right? Stock picking…not dead just yet!  I mean FB is up 27% YTD….27%!!  

The rest of the day was sideways, as it has been apt to be for a while now, and we closed at 2,151, up 47 bps. Volume? Clocked in just under 6B which is down a good chunk from the 2016 daily average. Again, I think the election is weighing on actual risk taking so lower volume doesn’t surprise me all that much. I remember volume dying in Europe before Brexit so the exact same thing is happening right now. I have to end with one final thought about the Cubs. Look, I’m not a lifelong fan so I won’t pretend that Saturday changed the course of my tortured existence. I grew up in CA, OR, and CT so it’s not like I was born on Clark and Addison. But I did live in Chicago from 1997 to 2007, met my wife, had my first kid, and went to school at U of C so the Cubs became my team. Why? Well, my parents moved me around so much I could never really dig into a franchise so falling in love with the Cubs was easy. To stand there and hear the roar that went up after the game ended was a soul filling moment. Years and years of frustration released in one giant cry of joy into a cool crisp night. It was a religious experience, like seeing the face of your brand new child, and it’s one I’ll never forget. Why? Because the happiness was pure, it was real, it wasn’t acquired in a store. So what’s my point? My point is never say no to an experience. Never say no to meeting someone and going somewhere that might change your life. If a buddy wants to meet you in Yosemite to take a hike go. If a client wants to meet you in a park just talk about life, go. If your wife says “let’s spend a weekend alone near a beach” go. That’s why we do what we do, not to buy dumb things like iPhones and cars. Experiences are everything in life, embrace them, don’t let a constant quest for a pile of money stand in the way of what really matters. Final Score: Dow  +43bps, S&P500 +47bps, Nasdaq +100bps, Rus2k +69bps.

Volume was low. Our desk was evenly matched. Buying in Health Care and REITs. Selling in Fiancials and Software. Shorting in Consumer.

News Highlights:

  • Succinct Summation of the Day’s events: Basically we can thank Europe for most of today, their PMI beat gave us all our gains. M&A and earnings didn’t move the needle.
  • This is the real bull case: “What we find is that broadly speaking this is just the third time since the financial crisis where growth prospects are increasing for a majority of the global economy. And over the past 6-months, we have the broadest participation in economic growth since 2010. Said slightly differently, all nine countries/regions now-casts are higher today than they were six months ago. Since these now-casts use current data to forecast a few months into the future, this actually means that growth through November is as strong and synchronized as it has been on a six month basis since 2010.”
  • I know I’m late to this, I’m not trying to break this news, but seriously, get an Echo.  It’s going to be this year’s top Holiday gift (I love ours):    “She started using the cylindrical device as a hands-free speaker. Then as a kitchen timer and weather checker. During board game nights, she’d tell Alexa — the artificial intelligence that powers the Echo — to play themed music from Pandora. She’d ask it trivia questions too.“We use it every day,” Palermo said. “She … it’s also weird I just called her a she!”
  • Fall is easily the best season
  • This is easily the worst
  • Europeans…come drive the CA coastline…it really is this nice!
  • Wow…I mean I’m so bearish after reading this quoteBased on the information in the WSJ article, it appears seasonal hiring will be at record levels in October this year.
  • Earnings are climbing:   “More importantly the ramp in the “forward 4-Quarter” SP 500 earnings estimate has started to turn significantly higher, but Exxon and Chevron need to print some good numbers this coming Friday, October 28th, AND crude oil needs to continue it’s steady rise.
  • Are wet wipes ruining the world?   Look, I’m a huge fan of these but let’s not get into that.   You gotta open this link just for the picture and the quote underneath.  Gold.

I have two links to end on tonight and as always I’ll give you a choice based on how itchy you are to delete this email

The first is short

The second is long (but worth it)

Have a good night!