Q2 Earnings Season
Equities start the day higher as Earnings season is upon us. I always love earnings season, it gives me a chance to read thru conference calls looking for economic nuggets, poke fun at analysts who say “great quarter guys”, and skewer the consumer facing company who blames weather for the fact that no one bought their stuff. As is the norm, earnings season kicks off with banks and God Bless you if you can make heads or tails of their numbers. These things have more moving parts than a Rube Goldberg machine so what I usually do is focus on what Jamie Dimon says because he runs one of the biggest banks in the World and is incredibly sharp. What exactly are we looking for over the next few weeks? To be honest all I really want to hear is this: things aren’t as bad as people say they are. I’d love to see CEOs and CFOs come out and report decent numbers (honestly that’s all we’d need) then say “guys, I know there’s a lot of noise surrounding trade wars and tariffs and the economy but what we are seeing isn’t that bad”. If that happens then earnings estimates for the rest of the year could flatten (maybe even increase?) and all of a sudden it’s not just multiple expansion carrying the day. Hey, did you know its $AMZN Prime Day? Can you believe a company can make up a day specifically to get people to shop on its website and that day is celebrated as a special event? Absolutely incredible, I love it, I’ve been dying to make Cold Brew coffee for my co-workers.
After the open it was completely dead, in fact I can’t believe I’m still writing this thing given how little happened. The S&P traded in a 5pt range over the first half of the session with the only real mover being SYMC which fell 11% on news that their merger talks with Broadcom are ending. Volume was about 15% below a 30 day average which I guess shouldn’t have surprised me, both Mondays and Fridays are slow during summer because who wants to punch buttons when the sun is shining. Winners were AMD, CF, WYNN, and RCL. Losers were the aforementioned Symantec as well as NBL, NFLX, ZION, and CMA. By lunch I was watching the market go nowhere while debating buying that insta-pot on Amazon. It’s been what…3 of these? 4? Every single time I put that insta-pot in my cart and then delete it. I just want good ramen in my life, is that too much to ask for?
Let’s wrap this up because you’re probably better off mowing your lawn than trying squeeze juice from this lemon. We closed at 3,014 which was basically unchanged from Friday. Hey, let’s switch gears and look at all of this from a Bears perspective shall we? I would think to be bearish here you’d want 1) earnings and growth to fall apart (not muddle along, completely fall apart) 2) the Fed to abandon its dovish stance 3) US China negotiations to fail (again) and 4) sentiment to get wildly bullish. Of those 4 we have our eyes on sentiment (its not wildly bullish but its elevated) yet the other 3 are still in the Bulls camp. Oh and if we had to weight the importance of the 4 it would look something like: Earnings 10%, Trade War 5%, Sentiment 5%, and Fed 80%. The Fed is casting a loooooooonnng shadow over Bears’ habitats my friends, Jerome Powell may as well be Ranger Smith (I wonder if this reference will hit home for anyone).
Final Score: Dow +0.1%, S&P500 flat, Nasdaq +0.17%, Rusk -0.5%
Slow day so I only have a couple links
- Read this technical update from JC. It’s quick, easy, and he breaks it down for us the right way
- Some really cool clocks here!! It’s long but I found myself mesmerized
- 10 Years, 10 observations, and 10 predictions
- Bill Mcbride is the best, check out his review of 10 Economic Questions for 2019. Bill isn’t even on recession watch.
- Necessity is the mother of invention
For tonight’s final link I wanted to share something you’ve probably already seen but I loved it so much I felt like it needed a spot in the recap. NYC can be a crazy place, especially when a blackout hits, but never forget that it’s filled with incredible people who do incredible things every single day. Imagine wandering by Carnegie Hall and this happening…
Have a good night
Mile Marker 3,000
Equities start the day higher as we continue to flirt with S&P 3,000. Man, I remember S&P 2,000 like it was yesterday, I was a budding young trader for Baird travelling to London saying things like “I’ll meet you in Lei chester square” and “geez there’s a lot of warm beer here”. Is the fact that we’ve reached 3,000 important? Is it some kind of major milestone? Nope, not at all. In fact there’s really nothing special about it, it’s just another road sign on your highway to retirement. As we know, life is a highway, I wanna ride it allll night looooooong (is that song good? I feel like it is). Let’s stick with the highway metaphor for a second: there’s nothing to say S&P 3,000 is about to be put in our rear view mirror. We might be here for awhile, in fact when the S&P hit 1,000 in 1998 it revisited it multiple times and only put it into the rear view mirror in 2009. 2009!!! The highways twists and turns but over the long run it goes from the SW to the NE. You have no control over the other drivers, most of the time we’re all going 55 in the same direction but there will be days and weeks where it looks like a Mad Max movie. You can always get off the road, there’s nothing stopping you from taking the next exit, but it can be really hard to get back on. You should constantly be filling up your car because increasing the amount of gas in the tank is a key to success. So wave to the 3,000 sign, tell the kids in the backseat to quit fighting, eat another bite of that beef jerky you bought at the gas station (always buy beef jerky when you fill up), and enjoy this moment because none of us knows what lies over the horizon.
After the open we flirted with 3,000 for most of the morning as we listened to day 2 of JPow’s testimony in front of Congress. Here’s what you need to have an opinion on right now: Is this upcoming rate cut in July just an “insurance” cut to ward of a cyclical slowdown or is it the start of a rate cut cycle because those are two different things. That being said, my man @ryandetrick posted this nugget: “can the Fed really cut rates with stocks at new highs? Going back to 1980, they've done it 17 times (SPX within 2% of new highs). A year later? The S&P 500 was higher all 17 times” Look at that chart…my God. Hey, you know who reported earnings last night and traded lower? Bed Bath and Beyond. A company that sells 48 kinds of trash cans and competes with basically everybody is down 86% since 2015. Yikes. Other losers were IRM, guess the iron got melted, down 7% and FAST, which you hate to see because its an industrial distributor, down 3.5%. Winners were CI, UNH, NVDA, and CVS.
We finished the day at 2,999.91…I mean….to quote John McEnroe….YOU CANNOT BE SERIOUS. Let’s try and make this super simple shall we: We finally broke a year and a half of sideways action, the Fed is dovish, and the trend is higher (200 day is upward sloping). So it’s a breakout, for now, and we like to let breakouts run. Now this assume the upcoming earnings season doesn’t derail it, which it might, so stay tuned because I’m guessing the highway has a few potholes ahead.
- I made a meme on Twitter! Let me know what you think
- Got a book for you to read, Daniel Crosby “The Laws of Wealth.” Great stuff, my man is an amazing writer
- This is one of my new favorite series “Blogger Wisdom”. Bunch of super smart Fintwit people dissecting interesting topics (maybe your boy gets an invite one day). Here’s today’s question What have you learned in the past year (or so) that genuinely surprised you? Or said another way, what thing have you changed your mind about recently?
- Mont St Michel is gorgeous. Did you know it was named after me?
- I’ve been to Japan, it really is this awesome
- Something every advisor should remember: The fastest way to fail as an investor to have reality fall short of your expectations. It’s better to plan for 5% and get 10% than to plan on 10% and only get 5%.
- Should you take a lump sum or an annuity at retirement? It depends but Nick looks at it here
- Why was this never a thing? Seems like every faucet should have this?
- I’ve decided that, after watching this video, I’m never using a treadmill again. Too dangerous
- Am I crazy or would this be annoying?
So you may have already seen this video on Twitter or on the internet but I love it. This little ping pongin’ master is my spirit animal. Makes me smile every time I watch it. This is me fighting back against people who are pessimistic in life.
Have a good night
Home Of The Brave
We’re going to interrupt our regularly scheduled programming for a BullandBaird special on the 4th of July. We will return to our normal channel filled with quirky market commentary and Fail videos next week but for now sit back, relax, and let me tell you why I love not only this holiday but the United States of America
Growing up I had a list of favorite holidays but the 4th of July was never on it. Halloween (still the best), Christmas, Thanksgiving, a typical list for a child who dreams of gravy covered stuffing and Star Wars toys. But the 4th of July never seemed to crack my favorite days. You see we moved around a lot when I was young, so I never got the chance to put my roots down in a place and spend years with the same community celebrating Independence Day. That all changed when I moved to a small town in Wisconsin to join Baird.
Whitefish Bay WI is a great place to raise a family. 13k friendly Wisconsinites who love being cold, eating cooked meats, and rooting for the Badgers. Like thousands of other towns in America the place explodes in a sea of red, white, and blue on the 4th of July celebrating not only our shared values but the nation we all love. My kids have only ever known a day filled with friends, smiling adults, a parade, and nighttime fireworks spectacular. If you asked them their favorite holiday they would likely say the 4th of July and why wouldn’t they? It’s a day to celebrate not only living in one of the best places on the planet but to remember what binds us all together.
We are still SUCH a young country. At 243 years old we are still a baby in the grand scheme of things. But in our short time span we have grown from a scrappy startup to a Global Superpower with the Worlds largest economy. Have we been perfect along the way? No, of course not. Are we perfect right now? Nope, but that’s ok. This nation is filled with people who at their very core good, and decent, and hardworking and love this country in their own unique way. We all share similar experiences even though we might not agree on every single thing. Parades, family, working hard, community, standing up as a Veteran walks by, getting chills when “aaaaaand the homeeee of the brave” is sung.
We actually might be living in a golden age. This is the longest economic expansion in our nation’s history. The stock market is up over 440% in the past decade. You hold the worlds knowledge and the ability to communicate with anyone on the globe in your pocket. We are launching rockets into space and landing them back on this planet. In fact, those very rockets might take humanity to Mars in your lifetime. Look, I know that politics and its discourse can be toxic but what I want you to remember is that you are seeing only a TINY TINY sliver of our nation’s history. The greatness of America is in its PEOPLE. Look at what US Real GDP growth has been since the 1800s. What political party is responsible for that chart? Neither. There’s been all kinds of politicians over that time frame but the reason the United States continues to thrive is buried within the hearts of its people.
You know why I am fiercely proud to be an American? Because of you. Because no matter who you are, what color your skin is, where you came from, or what you believe in, I know that you want to see America succeed just as badly as I do. The two us, plus countless other millions, can disagree on things but because we row in the same direction this nation’s future is incredibly bright. The single greatest speech ever given in History is the Gettysburg Address and I want you to reflect on this passage:
“It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain”
That great unfinished task before us is the United States of America. May She ever shine.
Sing it Ray
Summer, Summer, Summertime
Equities start the day rip roaring higher as summer winds down. Yep, that’s right, the days are getting shorter so pack it up and get the rakes out, summer is practically over. What a first half of the year though right? 10th best start in HISTORY to the stock market and our economic expansion is now the longest on record. How about them apples? @HumOnTheMarkets posted this picture showing what happened for the full year when the market was up at least 15% in the first half and yikes, those are some crazy numbers. Either a surge into year-end or a colossal selloff with only one tame outcome in 1976. Of course anything can and will happen so while that little graphic is fun to look let’s remember that the future is difficult to predict. Speaking of difficult to predict, I’m still blown away by the fact that the market is soaring while economic data slumps, trade wars are being waged, and almost no one thinks the economy will accelerate in the 2nd half. You know what’s that’s called right? A wall of worry. There are some very smart people out there who have stuck by the notion that a protracted trade war is GOOD for the stocks because it locks in negativity/fear. Once again investors who ignored fear mongers, top callers, and basement dwellers are being rewarded. Behavior is the most important thing you can manage when it comes to investing so congratulations if you ignored all the blaring headlines in the first half of 2019. We are sitting at new all-time highs and guess what? Making new highs is more bullish than not making new highs.
After the open we saw a whole lotta selling and very little buying. A gap up of about 1.1% invited all kinds of profit taking and by lunch half of that gain had been lost. Let’s talk stocks shall we? It’s been awhile since I’ve sarcastically picked apart an intraday move. The biggest winners were all chip names after this weekend’s ceasefire between the US and China. Imagine trying to run a chip company right now, how much of your stock performance is out of your hands? 90% 95%? AAPL gained 1.8% on the heels of Jony Ive announcing his departure. Is this a good thing for Apple consumers? I’m leaning towards yes. Maybe the next design team will stop trying to make everything as thin as phyllo sheets. Dude, I want a battery that last longer than 8 hours, not a phone I can’t see from the side. The biggest loser was COTY, a beauty products company that fell 14% after announcing a $3B writedown on some of their cosmetics brands. I guess they didn’t build their COTY on rock and roll? God that was so bad, I may give up writing forever. By lunch it looked like all the excitement around the Trump Xi meeting had fizzled out as we kept sliding lower.
We caught a small bounce from the session long selloff and managed to close at 2,964, up 0.77% which is a new all time high on the S&P500. So let’s wrap this up with one final tidbit: if we manage to hold on for another 6 months this will be the first decade without a recession in the US since the early 1800s. Now I hope I didn’t jinx it there but that’s a remarkable fact and a testament to the resiliency of our nation to bounce back from an awful housing/market bust. Imagine you spent the last ten years worried about every single slowdown in economic data or ripple in the market. Imagine you listened to the bubble callers and spent all your money on canned tuna and underground shelters. Markets go up and down, cycles come and go, spend less time worrying about those and more time on what makes you happy and you’ll have found a secret to life. Besides, who ever got rich betting against the United States of America? NO ONE.
- 8 hours a day, 5 days a week is a relic of the past for a great many jobs: “The traditional eight-hour work schedule is great if your job is repetitive, customer-facing, or physically constraining. But for the large and growing number of “knowledge jobs,” it might not be. You might be better off taking two hours in the morning to stay at home thinking about some big problem. Or go for a long mid-day walk to ponder why something isn’t working. Or leaving at 3pm and spend the rest of the day envisioning a new strategy.”
- I think this is a great take by Cullen Roche: “And that’s what brings us to the current expansion – while it’s been a weak expansion there are no obvious signs of a widespread boom. And the booms are what we need to be most concerned about. Yes, there have been pockets of unsustainable growth (such as San Francisco house prices and perhaps the stock market boom), but there hasn’t been a widespread surge in any specific part of the economic that is likely to cause a large and sustained bust. And that’s why I believe that if there is a bust it will be a fairly mild bust. So, yes, the expansion has been long, but it’s been smooth and that could be a good thing because it means that it won’t end with a big bust.”
- You know what? Being average is OK: “Keeping my head down, working on things I love doing, spending time with people I love, and not worrying where the race is headed and where I stand in ‘alpha-dom,’ I think has kept me somewhat sane over the years. This has helped me in my investing too, where not chasing “above-average” returns has helped me stay away from hot sectors and stocks for most of my investment career, and in turn achieve adequate returns that have helped me meet my goals so far without having to resort to any heroics”.
- I know you’re looking for an easy recipe to feed guests on the 4th of July. Your boy has one for you right here! This is a layup!
- You think the wifi is good there?
- I typically don’t get jealous of other people’s homes because I cherish all that life has given me but yea…im jealous.
Hey, it’s a holiday shortened week and that has me in a great mood so let’s see how awesome people are! (do we think these are all real? Some seem impossible)
Have a great night
Market Wisdom From Monty Python
Equities start the day flat and I think it’s time to revisit a movie classic so I can make a point. In April of 1975 Monty Python’s Holy Grail debuted to little fanfare but as time passed and its comedy aged like a fine Bordeaux it would end up on many “Greatest Comedy of All Time” lists. John Cleese, Graham Chapman, Terry Gilliam, Michael Palin, just a who’s who of funny Brits. It was a movie that heavily satirized Arthurian legend and included such classic scenes as a bunny wreaking havoc on a group of adventurers and a Knight who never quits. In one of funniest parts an undertaker is moving from dirt hovel to dirt hovel telling people to “bring out your dead” . A guy slings what must be his father over his shoulder and tries to dump him on the pile all while the poor gentlemen protests his fate. “I’m not dead yet…I feel fine….I feel happy.” You know what this poor beleaguered soul reminds me of? The US Economy. We keep trying to dump this expansion on the death cart of history all while it silently murmurs “I’m not dead, stop it”. Q2 GDP, as measured by the Atlanta Fed’s GDP Now debuted around 1.5%, fell below 1%, and we were practically burying it in a mausoleum. How often have people called for the end of not only the economy but of the stock market? Is it 50? 100? Ironically, after a slew of decent economic data last week, GDP Now ticked up to 2.1%. That’s right, exactly where we’ve been for years. I’m sure you’ve heard the term “muddle thru” but it has been, as always will be, the best description of the post Financial Crisis period. Economic growth keeps muddling thru (as Perma Bears lead people astray) and that’s been enough for the stock market to have one of its best runs in history. At the end of the scene they club the poor guy in the head and drop him on the pile finally ending his protestations. Will that club be Tariffs? A Trade War? A policy mistake? A good ole fashioned economic slowdown? None of us know but for now we’re not dead yet.
Wow that first paragraph ended up a bit long didn’t it? Luckily absolutely nothing happened today. Since there’s a Fed meeting on Wednesday, and the Fed is all the rage nowadays, the market went nowhere on no volume (about 20% below a 30 day avg…yikes). Hey, dear reader, Vanguard had a really cool study on “How America Saves” that’s worth your time (its long though). I liked this graphic which shows the % of allocations to equities by age. I’m heartened by the fact that this number has consistently risen for those under age 30, in fact I wrote a piece to my millennial friends urging them to do something similar (you can read it here). You’re doing great guys, I’m excited to see what you can accomplish, just know that your boy Mike is here to help out whenever you need something answered like “why does Wall St have to use so many complicated terms” or “why do people eat bone in wings when boneless is so much better” or “what finance book should I read as a 25yr old” (this one). I got your back, like and subscribe!
So yea, the death of the economy and the bull market have been greatly exaggerated for years now. Let’s have @StrategasRP weigh in here with one of their wonderful charts from today (thanks Jason and Ryan). Here is their Bull Market Top Checklist and if I’m reading this thing right (I’d like to think I am) then the real trouble looks to be a ways off. Frankly I’d love it if people keep calling top and worrying about the death of our economy, we want that Wall of Worry to be a mile high. In fact some argue that an end to the Trade War would be a “sell the news event” because it chips away a huge brick in it. Anyway, everyone is waiting for the Fed on Wednesday so don’t expect much action until then. Relax, have a cream soda (can you name the movie?)
- Morgan Housel, who I basically revere at this point, nails it when it comes to public speaking (I aim to do this in front of our clients): No one wants a lecture. But everyone likes stories. You can put lecture-like material into a story, but without a story you’ll lose people’s attention after a few minutes. Someone can reread a paragraph, or rewind a video. But a live talk is a one-shot deal where the audience probably isn’t even taking notes. They have to understand the topic instantly. And stories are the easiest way to quickly contextualize complicated topics. This is as true after a talk as it is during a talk. Dump a bunch of numbers on someone and they’ll forget them before they walk out of a room; tell them a story with those numbers and they may remember it years later
- Ok, so you’re bearish and think a recession is coming sooner rather than later, Barry says to do these things: Since we can all agree that another recession is inevitable, I am going to go out on a limb and suggest that now is the time to plan for it. Maybe these will help you get through relatively unscathed
- This is an incredible story about parents watching one of their kids struggle with depression. Must read.
- Is this a cool item? I’m leaning towards it being cool and wanting to buy it but it’s $299.
- Yo…YOOOOOOOOOO these look SO GOOD. Someone make these and report back
- Cullen is thinking about 3 charts (the forecasting one is painful)
- Factoid of the day: American Pie is the longest song ever to reach #1 on the charts, 8 mins and 35 seconds. (you know what other 8 min, 30 second song I love? Paradise by the Dashboard Light)
- Yo can I uh…work in here..
- Ever since I left trading to be a strategist things be like…
“Fly Me to the Moon” was the first song I danced to with my wife so it holds a special place in my heart. This hip hop version not only modernizes it but reminds me how timeless the song truly is
(how awesome was that first dance with your spouse? What an incredible memory)
https://www.youtube.com/watch?v=O1puRnV6gwE&feature=youtu.be (you need to be able to hear this)
Have a great night