Equities start the day lower as we continue to be in exhaustion mode. It happens, I mean if you binge on Easter candy eventually you are going to have a reckoning where zucchini looks pretty good. We opened at 1,996 on Feb 2 and closed at 2,117 on Mar 2, that’s a lot of peanut butter cups. ADP jobs data was out pre market and it showed the same thing we’ve seen for the past 4 years: 212k jobs. The 4 year average of this data point is 208k so make of it what you will (a lot finance twitter doesn’t even like the ADP report). So here’s a question I’ve been kicking around while I stare at the ceiling waiting for the Z-quil to kick in: what would blow us up? I’m not talking about this kind of blown up (video makes me ill) I’m talking what would knock the market down 15-20%? Would a Fed hike do it? Maybe, and a Fed hike is one of my biggest worries (Fed and oil can kill markets), but that decline would be a long drawn out process. A Chinese housing crash? Maybe, but we’ve been worrying about that for years now, it wouldn’t exactly sneak up on us. Stock Market valuations? Sure, that’s one, but overvaluation can last years (many argue it already has). Corp profit decline? Absolutely, which is why we stare at the rate of change in earnings. But let’s put those all aside and talk about one that really matters: plain simple sentiment. Just how people feel about the economy and stocks and the world around them. Markets can move sharply on simple shifts in perception so that’s the one that makes me nervous. Anyway, let’s move on to the day’s events and ponder that thought a bit later.
After the open, we spent a lot of time in the red as pullbacks were the story of the day. One sector not in the red though was Hospitals, which went absolutely banoodles on this Obamacare Supreme Court thing. You know you are in the weeds as a trader when you are scouring SCOTUS blogs for information. I mean I thought SCOTUS blogs were about…actually forget it. UHS / THC / CYH / LPNT, those kinds of names put in hockey sticks as a court of grizzled justices debated such awesome things as mandates and health exchanges. I mean it’s possible that hospitals were up because Americans eat stuff like this but let’s just go with the headlines. As we approached lunch the market found its footing and began to churn higher. Not sharp or sudden but enough to make people perk up. Volume was tame but it’s been tame for a month now. These “no news” higher markets just suck interest out of the investing world. Other than Health Care / Biotech names we saw nice returns from SNDK, GME, YHOO, and CAM. Losers were CNX, CHK, AA, CTL, and FAST. By lunch we sat on 2,098, down 46bps, on a fairly unremarkable day.
The final hour brought the Fed’s Beige Book but it didn’t affect the market one bit. We closed at 2,098, down 46bps as the market continued to let off some steam. So when I say a change in “sentiment” is what I really worry about all you have to do is look back at Oct of last year or Jan of this year. No real groundbreaking news but the market sold off just because everyone was selling. I know that sounds trite but this market will break one day, like it always does, and that break will begin as a subtle shift in sentiment. We aren’t there yet, and let’s hope we can see it while it’s happening, but until that day it’s still a bull market. Period. Final Score: Dow -58bps, S&P500 -44bps, Nasdaq -26bps, Rus2k -33bps.
Volume was average. Our desk was better to buy. Buying in Health Care and Tech. Selling in Utilites and Industrials. Shorting in Consumer. News Highlights:
- Succinct Summation of the Day’s Events: Slow one, some ok economic data, market feels near term overbought but it’s really just chopping around.
- Evans of the Chicago Fed is still singing Prince tunes: "I see no compelling reason for us to be in a hurry to tighten financial conditions before that time," Evans said in a speech to a business group in suburban Chicago. He repeated his view that the Fed should be patient until early next year.
- This WSJ article is great, it talks about the difference between Nasdaq 5000 then and now. Does anyone else feel like no one cares? And isn’t that a good thing? “Nasdaq’s biggest company then, Cisco, traded at 135 times earnings and had just $19 billion of revenue. Its biggest company now, Apple, trades at 17 times earnings and has $182 billion of revenue. As Dan Gallagher writes in today’s Heard on the Street, “Tech is pretty humdrum”. All five of the largest Nasdaq companies in 2000 were mainly business-facing companies while four of the five largest today are consumer facing companies. Apple and Facebook are producing genuine benefits for consumers around the world, but they are not revolutionizing business and life the way the innovations of the first Internet bubble did.”
- Howard Marks, always good to listen to: Marks said he has been successful by not taking bets that could lose dramatically, by mitigating loss, and by being consistent rather than having brilliant successes outweighed by dismal failures. He said, “If we avoid the losers, the winners take care of themselves.” He stressed the importance of matching your investment strategy with your personality and offered that his conservative nature supported his success in the bond market. A venture capital fund would fail if he ran it because he is “not a dreamer, a futurist or a congenital optimist.” What he tries to do is “take ten dollars and turn it into eleven, and have it become eleven before it becomes nine.”
- $840 people….yours for only eight hundred and forty…
- What does your beer say about your personality? Love the Heineken one
- Speaking of beer, if they didn’t’ have that 3.2 junk in UT I would go there more
- Looks like fun times in the San Fran studio rental market. Studios…
- Yale is doubling their cash! Always interesting to see what these guys do with billions in money: What you see here with this 3.5 percent — relatively high in terms of recent years — is the potential that Yale wants to have ‘dry powder’ to invest in things that are well valued in the endowment office’s point of view,” said William Jarvis ’77, managing director of the Commonfund Institute, a nonprofit consulting firm. “This is cash that is being accumulated so when Yale sees investments with those ‘uneconomic sellers’ — things that are priced favorably — they can write a check immediately.”
- Yellen, our current Fed Chair, actually nailed it back in 2009: Yellen correctly forecast that the recovery was starting (this was June 2009), but that the recovery would be sluggish - not V-shaped - because of the need for "balance sheet repair" (I made the same argument in mid-2009), and that inflation would be low for some time
I have two videos I want to finish with tonight but if I use them both I might run out for tmmrw. Needless to say they are both awesome, come back Thursday to see it!