Bull and Baird Blog - October 31, 2016

Equities start the day slightly higher as the wondrous day of Halloween is upon us! This is the day Jack Skellington lives for even as he laments the crown upon his pumpkin head. In honor of the last great holiday untouched by corporate ads and fictitious shopping days let us talk amongst ourselves about the scariest things imaginable. The first thing that pops into my head is another year of this ridiculous election. Freddy Krueger ain’t got nothing on a team of lawyers dragging Trump V Clinton into 2017. If you want want to know what Put buyers dream of for Christmas that would be at the top of their list. What else…how about a milkshake of Almond Joy and Bit ‘o Honey? How do those two candies still exist, is there some coven of witches that use them to turn kids into tasty appetizers? What about earnings…ooooo scary…what if the earnings growth rate turns negative to end the season? That would be 6 straight quarters of negative growth and only the bulliest of bulls could ignore that (luckily @factset says we are on track to end that streak). How about asking Harry Redknapp for a ride home after the costume party? Can you think of anything more terrifying? I mean no one wants to be turned into a speed bump (if you’re American you’re gonna need to hit up GOOG for that one). But by far the scariest thing I can imagine is sitting at your desk this week needing the market to move to make money. Lemme get this straight: there’s a Fed meeting on Wednesday and a U.S. Presidential election next Tuesday. What’s the “range bound for a week” fund called? Can I get some kind of home equity line to invest in that? We closed at 2,126 last Friday…anyone wanna bet we don’t move +/- 1% this entire week? Ugh, can we shut down for some kind of “I saw a tumbleweed behind my desk” holiday? By the way, if you wanna know who won “best costume” it is undoubtedly @AilishOctigan. That is some scary stuff. (this guy wins worst)

After the open we got a whole lot of sideways tossed into our candy bucket. No rhyme or reason to price action at all and I don’t know if you’ve seen a chart of the S&P lately but I think it’s forming what market technician call a “dragon tooth” pattern. The 50 and the 200 day are approaching each other like Maverick and that Mig 28 so the market is about to either break out or break down. Chicago PMI came in at 50, which is about the number of strikeouts between Heyward and Baez, so we can’t exactly point to the windy city as a beacon of economic growth right now (come on Cubs…win one for the anton-ipper). Movers and shakers on this completely sideways pointless day? Mostly utilities as treasury yields dropped a bit, names like NRG, NI, AEP and LNT. Other winners:  BRCD, CNA, L, and DVA. Losers were ZBH, CTL, BHI, and all the energy names because crude fell over 4%. Remember a few months ago when crude would drop and the market would act like someone put a razor blade in its apple? Yea that’s not the case anymore, how quickly we forget about all those “worries.” By lunch we sat on 2,127 which was sharply unchanged.  

The last few hours saw a bit of downside but it was as shallow as a kiddie pool. We closed at 2,126 exactly where we were at lunch. BORING. Now as you know, from time to time I get hit with random life experiences that I try to craft into a market related story. Family, friends, pictures with Hillary Clinton, you know, the kind of stuff that happens in a normal everyday life. They can be cheesy, I know, but I’m trying to stand out in a sea of boring market commentary. Since it’s Halloween allow me to relate one story before you exit this page. My town did trick-or-treating yesterday (don’t ask) and as I prepared my two kids I thought of all the awesome times I’ve had with them over the years. My son, who is now 10, has dressed up in all kinds of costumes like a dog, a fireman, a superhero, and even the Phantom of the Opera. As we prepared to take our 2 hour stroll thru town my 8 year old daughter reached out and grabbed my hand excited to collect all kinds of tasty treats with her father. My son, on the other hand, ran into 3 of his friends and shot me a quick look that said “Dad, I’m off to have fun with the boys, I’ll see you later.” Like the leaves around me a gust of wind swept him out of view and all he left behind was a trail of my memories. A little dog in a wagon, a Batman chasing the Joker, a fireman with a big black hat, gone from my sight was the little boy I once walked with who couldn’t quite hold all his candy. Goodbye little boy, you’ll live forever in my heart. It goes fast my friends, really fast. If you have a child and they have Trick-or-Treat tonight savor every moment. Walk with them, hold their hand, dress up, laugh, eat some candy and then come back and tell me it wasn’t the best thing you’ve ever done. The market is going nowhere right now, embrace the joy that Halloween can bring.

Final Score:  Dow -10bps, S&P500 -1bps, Nasdaq -2bps, Rus2k +2bps

Volume was average. Our desk was better to sell. Buying in Tech and Consumer. Selling in Energy and Industrials. Shorting in Energy.

News Highlights: 

  • Succinct Summation of the Day’s Events: One or two random macro data points but the market hasn’t moved since July. 
  • Barry gave us his best Halloween list! “What do investors fear -- and more properly, what should they fear? Let’s look at some of the more common fears that now haunt Wall Street traders. Here is my top 10 list.”
  • Where is the money going? Josh pondersIf we’re not afraid of rate hikes, but unwilling to bet on stocks or sit in cash, then it stands to reason we are more afraid of two other things: The election and fear of earning no returns. This leads to an enormous 4x swing in bond fund inflows and the tidal wave of money sloshing out of stocks and cash. In other words, watch what they do, not what they say.
  • 8 hours of spooky sounds! Perfect for your Halloween party.
  • Runner up for scariest costume.
  • Emotions can literally ruin your finances: “If I had to pick just one behavioral bias to help understand why people make the decisions that they do it would be loss aversion. So the point is to recognize these ingrained psychological feelings and figure out how to avoid letting them control your decisions. Emotions are neither good nor bad. It’s the reaction to your emotions that matters.”
  • Zombie market is so apropos: “The S&P 500 is on pace for its third monthly decline in a row, but by all accounts it has been one of the tamest three-month losing streaks in history.”
  • The Healthcare crash in one amazing chart. Look at that PE plummet
  • Wall St “scariest chart” for sure.

So yea, of course we are going to have Halloween fails as the final link tonight. What did you expect, some kind of lame list of “Best Horror Movies” to watch tonight?    

  1.  The Shining
  2.  Poltergeist
  3.  The Exorcist
  4.  Prince of Darkness
  5.  Scream 1


Have a good night.