A Quiet Winter Monday

Equities start the day lower on a quiet winter Monday. Not much action overnight other than a Japanese takeout offer for one of the iconic American Whiskey brands. Pappy? Nope, Jim Beam (why hasn’t someone taken out Pappy? seems like it would be a heck of a trophy brand). Who is angling for $BEAM? I’ll let Youtube tell you because I can’t possibly top this video. So the biggest buzzword I’ve seen to start the year is Valuation (I could’ve went with “Selfie” but I’ll save that discussion for another time). Kostin of GS is out with a big report talking about where we are and where we can go. The nuts and bolts of it is this: we sit at 15.9x, and if we use history as our guide the market almost never trades above 17x. It’s a good read, worth a couple minutes of your time. But does that mean a crash is imminent? No, and that’s an important point. Just because we sit at the high end of historical valuations doesn’t mean we are perched at the edge of a cliff. We could just as easily plod along sideways for years as we could slip into a ravine. What you need to wrap your arms around is expectations: what should they be going forward? First off let’s not be greedy, we’ve had a heck of a run off the lows, expectations for returns should have a healthy dose of moderation. But we also need to consider that not only is it different this time, it’s different EVERY time. Low interest rates, no inflation, a job market that is healing, a housing market that is healing, and worldwide economies that are putting the pieces back together. So yea, things might be muted going forward but that doesn’t mean you give up on stocks. Don’t confuse valuation with opportunity because there’s ALWAYS a way to make money. Now let’s see how long we sat on unchanged today.

After the open we got a small rally to start but ultimately fell to the lows by lunch. You know what mode this market is in right now? Beast mode? Nope, punish mode. Every now and then it takes us all behind the woodshed and teaches us a lesson about consensus. How did most people come into 2014? Long stocks, short bonds, venomously hating gold. What are the YTD return of those respectively? Yea you get the point I’m making. January has featured no real news, no real macro data, and no real client interest, so in the absence of all that the market has decided to smack us around and make us question our thesis. Now comes all the blog posts and talking heads telling us how the rally is over and it’s time to bunker down. Which is GREAT, that kind of atmosphere brings sentiment back to where it should be. What moved today? Obviously BEAM and I have to say I get what Suntory is going for here. Everyone I know under the age of 30 is drinking Bourbon now, it’s easily the hottest spirit around. Vodka? Played out. Other winners were JNPR, MRK, FFIV, and BF/B. Plenty of losers including LULU (execution issues seem to be piling up here), ISRG, MCK, SNI, SYMC, and ICPT (can you imagine trying to trade this). By lunch the red numbers were piling up as we sat on 1,830, down 0.6%.

The afternoon was even uglier than the morning, you woulda thought Yellen tweeted “sell this sucker you pigs” to the world. Down and down we went until we bottomed at 1,818, down 1.3%. Well…at least all those “overbought / overbelieved” conditions have reset a bit. So what are we looking for now if we are bullish? Two things: 1) a whole TON of negative blog posts and commentary about stocks. Bring that on. 2) Sentiment. We want to see sentiment numbers take a huge dive. If they do that means people aren’t married to their bullishness and this is a garden variety pullback. If those sentiment numbers remain frothy then that’s a horrible sign. What are you looking for if you are a bear? A collapse in Transports, the Rus2k, and a whole load of selling after earnings beats. Anyway, market movement creates opportunity so get out there and get involved! It feels like the game is officially on!

Final Score: Dow -109bps, S&P500 -126bps, Nasdaq -147bps, Rus2k -157bps.

News Highlights:

We’ll end tonight with a sick golf shot from Charles Schwartzel. Talk about a thin lie…http://youtu.be/BLZfp9qpLsQ?t=26s