The Great Halloween Bounce Continues

Equities start the day higher as the Great Halloween bounce continues. Yesterday felt ok, not great, and even though the S&P gained a bit less than 1% volume felt whimsically nonexistent. But why? Why was volume so low? Because I’m not sure people trust this market right now. We’ve just been thru a tumultuous time in our relationship: lots of bickering, finger pointing, angst, and accusations about Ebola and failed PnL promises. So it’s going to take time to rebuild that mutual adoration, you’d expect people’s feelings to be hurt. After I ate my spackle tasting Greek yogurt this morning I spent a few minutes on Twitter looking for comfort about the selloff we just went thru (twitter is great for a trader because it provides raw ideas that can be adapted / discussed with clients. Just love it). Anyway, in that endeavor I ended up in an interesting conversation. One commentator (@conorsen) thought it was mainly due to positioning. Too many trapped longs / off sides players.  So…my good readers….was it all about “people over their skis” i.e. were too many people positioned wrong with too much leverage? Maybe, but I don’t think that’s entirely the case. Yes, markets do inflict pain on people who are all in, that is true. You remember that early Jan/Feb selloff? I think that entire thing was about too many people loving stocks. This one feels a bit different though…let’s ponder further. Another commentator (@michaelsantoli) proffered that it was more about Europe, stranded capital in energy, and the fact that a less aggressive central bank (the ECB) has come to the forefront. Those are all great ways to look at it, and I agree with them all. In the end it’s a bit of both, a bit of all, but that’s just how markets work. It doesn’t help us make money going forward but it does help us understand the current market psychology. How do we make money going forward? By picking up the pieces, so let’s see what happened today.

After the open we watched Europe and the US rip because someone floated the idea that the ECB might buy corporate debt. Ok, allow me to go off the rails here for second. COME ON MAN. This is an entity that has dragged its feet at almost every kind of QE and now they are debating outright intervening in private debt markets? Ok, yea, sounds great.  Maybe my daughter will finally eat that 2 lb pile of broccoli I dropped on her plate too. A guy can dream. Anyway, since markets love reacting to crazy headlines we ripped…and ripped HARD. Germany closed +1.9%, France +1.6%, France +2%, and Italy +2.8%. Of course the FT came out saying “umm, that’s not on the agenda” but why let this silly news thing get in the way of a good rally? Back home we got lots of earnings to talk about so let’s get to it. Apple is still selling a ton of phones, Chipotle is still selling a ton of burritos (I prefer the tacos), and two American titans are struggling with generational changes. Both KO and MCD fell because their products are starting to creak. Do millennials drink a lot sugar water and eat Big Macs?  Probably not. Frankly my kids can’t stand Mcdonalds but that’s a story for another recap. The popular narrative forming is that these companies are on downward trajectories due changing tastes (among other things, let me ramble here. I get that the story is more complex). But you know what? They aren’t going anywhere, period. MCD and KO will be here when you and I die, they will just sell new products / adapt to the times. Savvy investors will wait for sentiment to get atrocious (you’ll know when that happens too. You’ll read about “the death of Mcdonalds” in something like Barrons) and then they’ll scoop tremendous companies at great valuations. You think Uncle Carl wouldn’t love buying MCD at a single digit multiple? Of course he would. Anyway there were endless winners this morning as the market SOARED. By lunch we sat on 1,936, up 1.7%, marveling at the best move of them all…Transports (it really was eye opening).

The final hour was up and to the right and if you wanted a song to express the price action of today here you go (I love it so much). 1,941 a date that will live in….wait what was I talking about? Oh yea, up 37 freaking points.  1.9%. Biggest rally in a YEAR that and we have now erased HALF of the losses we suffered from the highs. You know who didn’t sell / buy this wicked crazy move? Almost everyone. That’s the funny thing right? I talked to numerous clients who said “the move was too fast down and too fast up for me to act”.  Which is why crazy markets often have to be…...ignored? No one managing a $3B portfolio is going to be able to get flat at the top or longer at the bottom, it just doesn’t work that way. Clients have been rotating, they have been reducing, they have been adding, but none are winging their portfolios around because of the reasons we discussed earlier. Those reasons might change their medium to long term view but nothing on the planet changes their 8 day view absent some kind of incredible event. So now we hope for sideways…in fact we pray for sideways. Let us digest the move. Let us figure out what’s broken and what’s not and then people can start positioning for year end. Wow…what a wild last two weeks huh? 

Final score:  Dow +131bps, S&P500 +196bps, Nasdaq +262bps (unreal), Rus2k +163bps.

News Highlights:

We’ll end tonight with a crazy trick shot in golf.   I bet it took 59 takes to do.

Have a good night.