The Market Continues To Struggle With Direction
Equities start the day higher as the market continues to struggle with direction. Since last we spoke a couple things have occurred 1) a sadistic king was assassinated (thank God) 2) earnings have ramped up (more on this in a bit) 3) baseball has started (there isn’t a more boring sport) 4) The Masters has come and gone (who doesn’t love Bubba?) 5) We got a new trading system on our desk (talk about upping your stress level) and 6) the S&P has gone absolutely nowhere. But why? Why is it going nowhere? Well it’s not because of earnings, they’ve actually been fine. Hey Factset, what’s the story so far? “In the aggregate, companies are beating consensus EPS estimates by 4.8%. This is nicely ahead of the ~3.2% four-quarter average and represents a marked improvement from earlier in Q1 earnings season when the surprise rate was slightly negative. Companies are beating consensus revenue estimates by 0.5%. This is below the 1.2% for Q4, but above the 0.3% four-quarter average.” Hmmm, so it’s not earnings holding us back, what else could it be? Well, we’ve had this momentum stock implosion, maybe that’s why risk appetites are subdued. No one knows why it happened but it’s definitely a contributing factor. The truth is no one knows why the market is aimless, it’s an amalgamation of issues that just need time to sort out. Is the bull market over? I still don’t think so, markets don’t give you this long to get out at the high. Anyway, let’s see what’s up on another cold Monday in the Midwest (spring is awful here, it’s so rage inducing).
After the open we had another day of ups and downs on no news that ultimately landed us on unchanged by lunch (but that didn’t stop the pain in High Beta / Momo : look at CRM, AMZN, NFLX today). Hey, you’re gonna love this, it’s right up my sarcastic alley. BAC came out today and told investors that they have to scrap their capital plans because they have something on their books that even confused them! Look at this sentence and MARVEL at the glory!! “the company discovered an incorrect adjustment being applied in the determination of regulatory capital related to the application of the fair value option to certain legacy Merrill Lynch structured notes resulting in an overstatement of its regulatory capital amounts and ratios.” Have you ever read a sentence in your LIFE that made you want to abandon bank investing? Now you have! I love that sentence so much, it’s one of the main reasons I sought to write funny recaps. Wall St communication can be so painful/confusing/dense/mysterious that anyone who talks NORMALLY stands out. Anyway…how about saying “we had a couple structured notes that, well, we had no idea how to value / set aside capital for” instead of putting out the most lawyered up statement I’ve ever heard. What did this little blip cost the company? 6% and a whole lot of investors scratching their heads. Good times. By lunch we sat on 1,863, exactly where we were on March 4th. Josh Brown also wondered about this aimless market today, go read his piece, it’s excellent.
The 2nd half of the day looked like a sine wave as the market fell 0.75% then rallied to close up 0.32%. Winners were ROP, POM, BBY, and AAPL. Losers were NOV, CRM, AMZN, BAC, and CMG. Why the afternoon madness? Absolutely no reason other than the continued meltdown of high PE names. As I said earlier, if you wanna some Craster home nastiness just punch up your favorite high beta tech name and marvel at its gritty misery (that scene was a bit over the top). So here we sit with a market up 1% YTD looking for some kind of direction amongst a vicious internal rotation. Wait, that sounds too complicated, let’s ease up a bit. So here we sit with a market that has no idea what it wants to do as summer approaches. Sell in May? We’ll see.
Final Score: Dow +53bps, S&P500 +32bps, Nasdaq +34bps, Rus2k -53 bps (once again defended its 200 day MAVG intraday).
- Interesting graphic here…to whom does the US of A owe money? Ok, after looking at that pie chart I have one question…Belgium? Did we buy a ton of chocolate and I missed it?
- Labor shortages? Is that going to be a problem soon? To hire 10 to 15 project coordinators this year, Texas builder Sabre Commercial has boosted pay 10 percent and added a 401(k) retirement plan. “It is an employee’s market,” says John Cyrier, co-founder and president of the 48-employee Austin-based company. “We are definitely seeing a labor shortage in Austin and central Texas. I see it only getting worse.” Can a market top with labor shortages?
- My favorite blogger tells you “Why it is hard to win in investing”: I’ve talked about the fear/greed cycle many times before. I’ve also talked about time-weighted vs dollar-weighted returns before. I’ve talked about vintage years in lending before, and about absolute return investors before. I’ve talked about industry rotation before, as well as long-term mean reversion. These are all manifestations of the same phenomenon in investing — it is best to invest in any given area when few are doing so, and worst to invest when almost all are doing so. Great chart in that link too, check it out.
- Grantland is ALWAYS a must read after Sunday’s Game of Thrones. As Daenerys looked upon her ruins, I despaired. Why does she want to go to Westeros, again? To avenge the good name of relatives she can’t even remember? To rule subjects she’s never even seen? The weather seems awfully nice in the East
- Since its rainy and 40 degrees EVERY DAY OF MY MISERABLE LIFE in the Midwest, I have to look at pictures like these to retain sanity.
- One last bit on earnings: corporate guidance has finally flipped positive for the first time since 2011
- Just an awesome picture
- I’ll tell you what, if it worked, I’d buy it.
We’ll end tonight with a quick hit. I’ve never seen a motocycle parked like this before and I can’t imagine ever seeing it again.
Have a good night.