No One Is Falling For It

Equities start the day slightly higher but come on, no one is falling for it. Open near the top of the range…fake everyone into thinking positively…get a few people to chase…then slam the door in our face. Since I’ve spent the past few recaps discussing this very topic, and trying my best to come up with new ways to describe it, I figured today we’d use a picture! So I dug into my bag of tricks to see if anything worked. Lo and behold I found this one! Now make sure you click that link because otherwise this entire section is going to seem pointless. That guy with the suntanned toes, who probably enjoys the heck out of his life, is us. You, me, the market, all of us. Look how far we’ve come, we’ve scaled the mast of worries all the way from the waterline. Greece, Flash Crashes, Slow Growth, Cyprus, Italian Banks, US Govt default, Valuations, Elections, the list could go on and on. There were countless rungs on the ladder to where we are. So here we stand, proud of ourselves, we are near the highs! We don’t wanna climb down because screw that, it took a lot of effort to get here. But we also don’t wanna continue higher because…my God that water is really far and if we slip there isn’t much of a safety net. We do have a rope around our waist, the Fed, but the rope is being loosened as we speak. It might not be there for us in the near future and that concerns us. So here we stand, on this ledge, S&P 2050-2100, and we wait. We don’t wanna go down yet we don’t wanna go up. What does that mean for our future? I don’t know, no one does. All I can say is that we won’t stand here forever, pretty soon we are going to get tired of waiting for a reason to move and this ledge will be left to the history books.

After the open we got the slowest selloff of all time. It took the better part of 4.5 hours to go from 2108 to 2096. Just a long, sideways, gentle slope as we once again failed at the highs. I might have to leave this dead horse behind because it’s starting to smell really bad, but needless to say I wasn’t surprised. Big losses today from UA, HOG, and PNR are probably worth mentioning. UA missed on sales, and given the run it’s had lately (was up 30% YTD) I wasn’t surprised by the selling. HOG fell sharply after cutting shipment forecasts and PNR earnings are worth a quick look because while they said there is “broad economic uncertainty,” they also noted that “the only geography of growth we saw was North America”. Which is the whole story right? Some growth here, a struggle elsewhere. Some good, some bad. At least we know this whole “US sales vs Global sales” isn’t a made up market worry. Bill Gross called the German Bund “the short of his lifetime”. I guess we’ll see, JGB’s have certainly made a mockery of anyone shorting it for the past, I don’t know, few decades. Can you believe one of the world’s most powerful economies pays 10bps to borrow for 10 years? I wish I could read future economic textbooks, I bet they are gonna be awesome (and still have a bid offer of $5 / $95. What a joke). Winners today (can’t forget those): ATI, MYL, LRCX, VRTX, and KMB. By lunch we sat on unchanged, mired in the muck.

Nothing in the afternoon to report, we closed just shy of where we were at lunch, 2097, down a smidge. Yet once again we started the day only a few points from a new all-time high. Sigh. Earnings are off and running so I thought I’d end tonight with a quick snapshot of top and bottom line beat rates (courtesy Bespoke). As you can see, bottom line, doing fine, top line, not so fine. I know it’s early but all the fears about top line growth are manifesting themselves. Unless that beat rate starts making a significant move higher we’re gonna have one ugly quarter of sales data. And maybe, just maybe, we start climbing down the mast.   

Final Score:  Dow  -46bps, S&P500 -14bps, Nasdaq +39bps, Rus2k -6bps.  

News Highlights:

After hours movers:  CMG -4%, ISRG -3%, FBHS -1%, YHOO -1%, AMGN +2%, BRCM +4%, ILMN +3%, YUM +2%

Not much else so let’s skip to the big finish.

First, this quote.  Which I think is really really good for all the PMs out there

The risk of paying too high a price for good-quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. The purchasers view the current good earnings as equivalent to “earning power” and assume that prosperity is synonymous with safety. - Benjamin Graham

And this video, which teaches us a powerful lesson:  if you are going to cut down a tree, it’s best not to run in the direction its falling.

Have a good night.