Markets Don’t “Root” For A Political Outcome

Equities start the day lower as sentiment exits stage left. Now look, there’s a few rules the market abides by on a day to day basis. Little things that all investors, fund managers, analysts, day traders, and bankers have to remember as they navigate this crazy world (notice how I put bankers last…BOOM). When you see people buying Yachts, giant homes in the Hamptons, and commercials on TV talking about “money coming out of the wazoo” then it’s fairly certain a market top is imminent. On the flip side when you see people rioting on TV or protesting in the streets or blocking major thoroughfares because they are displeased with the general state of things the market will likely take on a more muted tone. Sentiment is a fantastic indicator but you have to remember it swings both ways. Oh and markets don’t “root” for a political outcome, a political party, or a certain person for President. What they want is a friendly business environment, a strong rule of law, innovation, accounting transparency, and general stability. The kind of atmosphere where businesses grow, people work, economies expand, and life is good. We have all of those in the U.S., it’s what makes our country so great, but from time to time the apple cart gets upset and markets double double toil and trouble for a bit. Futures down 50bps at the open because we had some rumblings over the weekend? Fine, whatever, that’s ok, it’s not the end of the world. In fact I’d argue we need a few days of weakness because sentiment is still way too frothy. Don’t sweat the turbulence when you fly and don’t sweat the turbulence when you invest. The time to get nervous is when the wing falls off…

After the open it was a whole lot of this which, honestly, we haven’t seen in a long time. The S&P fell 1% within the first hour and stayed there all the way thru lunch. You know the last time the market fell 1% intraday? November 1st…..can you believe that? Let’s talk individual names though because we can have a lot fun. FIT lost 16% after reporting horrendous earnings (we rate Neutral) and I have to wonder… do people still wear these things? I get that you can have some kind of battle with your friends on who “walks the most” but honestly, I’d whip you no sweat. TPX dropped 28% after losing contracts to sell its foam filled wonders in Mattress Firm. Does your town have as many mattress shops as mine? I swear there’s one every other block selling the same things. In fact there’s probably more mattresses than craft beers at this point… stop already. What else? Sears fell 7% because Sears, RAD lopped off 17% because their receipts are using up the entire paper supply of the West Coast, and UAL gave back 3.5% because they downgraded me to Premier Silver. Mr Antonelli would like another glass of plastic wine with your middle row seat next to the lavatory? Thanks for flying with us. Winners were AMG, ADS, NEM, GPS, and WHR, none of which had very interesting news. Oh you increased your stock buyback and beat margins by 14bps? How exciting. By lunch we were trending sideways on the lows, 2,272, down 1%.

The last hour of the day saw a small rally and a close at 2,280 down 60bps. 60 bps, 0.6%, 13 S&P points, that’s it. Basically the whole point of my first paragraph was to remind you that times they are changing but you know what? They are always changing. You can’t time the market (read my news highlights for why) so stick to your long term plan and ride out the bumpy waves. Even with today’s selloff the market is up 1.8% MTD, that’s not a bad return at all. If I had to be completely honest with you guys I’m almost rooting for a selloff. I want to see the late arrivers and weak kneed bulls take one on the chin so we can start grinding higher once they bail and say “see, I told you so.” Stay tuned later this week when we talk about why the Patriots are going to win and why you should serve chili rubbed steak tacos with chimichurri at your party. Mmmmmm. Final Score:  Dow -61bps, S&P500 -60bps, Nasdaq -83bps, Rus2k -134bps.       

Volume was average. Our desk was better to sell. Buying in Consumer, Tech, and Materials. Selling in Packaging and Health Care. Shorting in Financials. News Highlights:

• Succinct Summation of the Day’s Events: 
• Selloff due to a general level of uneasiness and markets stretched a bit too far. Nothing serious.
• Josh Brown has his own take on my first paragraph: “Put simply, US stocks, bonds and real estate are the most trusted and relied upon financial “risk assets” on planet earth. We have strong contract law and, as a result, people all over the world allocate to these instruments with confidence. We should not take this for granted or fool ourselves into believing it’s permanent.”
• 2016 was just an average year guys: “First, US stocks, measured by the S&P 500, finished the year up 11.96%, a wonderfully solid year. Long term average compounded returns for US stocks are in the 9-10% range (depending on how you’re counting), so this ended up being an average, slightly better than average year.”
• How to produce high quality research: “There is plenty of investment research available to investors today. Some of it is biased. Some of it is useful. The most important thing for investors is to understand that it’s your interpretation of the research that’s out there that matters. Two investors can look at the same research piece, chart or table and come to two very different conclusions based on their interpretation of what it means.  Access to high-quality research can help, but how you interpret the firehose of information available at your fingertips will have the largest impact on how you apply it to the markets.”
• This is a marriage built to last. No joke that’s what a good marriage looks like if you had to act it out.
• Let this stat sink in and come back and tell me you are good at market timing: “There are 1,020 months in the 85-year period from 1926 through 2010. The best 85 months, an average of just one month a year (or just 8.3% of the months), provided an average return of 10.7%. The remaining 935 months (or 91.7% of the months) produced virtually no return (just 0.05%).” What do you think the odds are you can pick those 85 months out of 1,020?   Is it zero or zero?  I’m thinking it’s probably closer to zero.
• This is a real hotel in Canada.  
• Good leaders are great storytellers. “Leadership is the art of inspiring others to make a story come true. Therefore, if you’re leading people, you’re telling them a story — by definition. Of course, your story might not be connecting as deeply as you’d like, and that’s why leaders benefit from becoming better storytellers.”
• I bet I know who wins the Darwin award this year.
• 5 reasons to stay invested. I love Kleintop, must read.

Ok look, the final video tonight is not for the faint of heart. It is filled with intense pain and suffering, so if you don’t want to watch a bunch of skateboarders eating their teeth for lunch don’t watch. Ouch.

https://www.youtube.com/watch?v=-wqwaIh2tYE&app=desktop

Have a good night.