Argentina Defaults
Equities start the day lower as Argentina defaults. Was that really the reason futures fell 13 pts before the open? I doubt it, Argentina has defaulted more times than I’ve tried to diet. My fancy smart classmate at JPM says the CDS market was pricing in a 65% chance of default yesterday so clearly the market somewhat expected this event. Anyway, futures looked pretty ugly this morning but most of the blame can probably be attributed to earnings and a general malaise in price action. Today was the last major day of the earnings season and while things haven’t been bad by any stretch they haven’t been world beating either. Throw in the fact that macro data is exhibiting a very similar “good, but not great” style and you can see why the market is struggling a bit. Yesterday the Fed reminded us that they still have our back, which is great, but it wasn’t enough to break our sideways range. The S&P has been trending horizontally since the end of June and I had hoped earnings would be enough to print that magical 2,000 number. Unfortunately it looks like they weren’t so we’ll have to find another catalyst to take ‘em higher. What might that be? Well, certainly not an Argentine default or an Ebola breakout.But those are just reasons to sell, not trend killers, so let’s not overreact. I guess we need to keep our eyes open for “under the radar” bullish signals because right now I’m not seeing any.
After the open we entered a face planting mess of a market. Chicago PMI had its biggest drop since the Cretaceous period and a combination of headlines and momentum crushed the market for a stinky 1.5%. Volume surged as people dumped equities like moldy bread and by lunch we were all looking around for answers to the carnage. Was it really the argy headlines? I doubt it. Was it earnings? Again I doubt it, they haven’t been that bad in aggregate. Ukraine? Been around for weeks, not new. So what else is there? Maybe it was all the syndicate activity? I mean we did have more IPOs this week than any week since 2000. It’s at least possible that all the supply overwhelmed us. Essentially, if everything prices as scheduled, we will have seen 23 IPOs and 13 follow ons for a total of $9B USD in issuance. Wow. Which I guess leads us to another issue which might be a general market exhaustion? Sure feels like we’ve run out of steam to the upside. In the end, as with most sharp selloffs, it’s an amalgam of all these things so let’s not blame any specific headline. Any movers today? Does a bear wear a funny hat? (I so wanted to go with the normal version). 8 stocks were down more than 5%. 14 were down more than 4%. 50 were down more than 3%. So basically a lot of broad based pukage. At the halfway point there were only 20 stocks in the S&P that were green led by MPC and ALL (let’s give them a round of applause for fighting off the mongol horde).
The afternoon saw more hammering than a housing development (ill give that a C-) and by the time the sadism ended we landed on… 1,930, down 2%. The 2nd worst day of the year on a percentage basis. Wait…1930 is near 1927…the year of the big….uh oh. I’ll tell you what the brutality was real, it was like being in a Saw movie. Or this guy. Tomorrow is going to be insanely important to watch for two reasons. First we get the jobs report but more importantly we need to see if dip buyers are real. It’s the start of a new month and they were just given a blue light special on stocks. If they don’t show up I think it bodes very poorly for the broader market and we’ll head back to 1,900 in quick fashion. What happens then? All the stock market bears will claim victory and want some kind of Twitter gold medal. What a farce. Did I mention today was ugly?
News Highlights:
- Valuation tweet from Bespoke today: Earnings season and a market pullback have dropped the S&P 500's P/E back below 18. 17.68 now, was at 18.25 a month ago. (trailing 12-mth)
- CNN has a decent little sentiment indicator on their hands. This thing was at 98 at the start of July. Look at it after today’s selloff.
- Speaking of sentiment, how is the AAII survey doing? Pessimism among individual investors is above 30% for the first time since mid-April. Nonetheless, the percentage of bulls and bears is evenly split in the latest AAII Sentiment Survey. You know what bullish readings have done the past few years? As we’ve rallied? Take a look here. Yep, we sure are “over believed”
- So apparently the Maldives are heaven. Or at least what I would want heaven to look like.
- Look at this great Birinyi chart, shows how much “negative earnings commentary” really matters.
- Dear Janet: after today we are going to need some more of this
- Winners: MPC / TSO / LRCX / ALL / NWL / SPLS
- Losers: Everything else but especially LLL / PNR / HP / MUR / GNW / KRFT
We’ll end tonight with the craziest roof jump I’ve ever seen. No idea what this guy was thinking
Have a good night