An Ever Shifting Narrative Loses Its Luster
Equities start the day lower as an ever shifting narrative loses its luster. Narrative…that’s a great word. Sounds fancy yet its definition is very simple: a story. What story could we possibly come up with for the price action we’ve seen in Oct and Nov? Is there one? Up 10% in Oct because the market was just too over sold. Down 3% to start Nov because the market is just too over bought. Down 2.3% on Thursday and Friday of last week just because. Up 1.3% yesterday because maybe 2.3% was too much. The problem with narrative (with respect to stock markets) is that there almost never is one, at least one that makes sense on a day to day basis. Every now and then I have the pleasure of speaking with someone at Bloomberg or the WSJ about the day’s events and I often feel bad that they have to write a big serious story when nothing is going on. “Oh great, core CPI was unchanged and the NAHB housing index is at 64, let’s craft a story to describe why the S&P fell 0.16%”. Ouch! At least I can use this space to poke fun at crazy statements and random stock movements….they have to be serious all the time! Anyway, here we sit with the U.S stock market unchanged on the year even though it’s swinging around in percentages week to week. What’s the narrative? That the Fed is hiking rates and China is a hot mess. But if you think those are what’s causing the market to fall 1% on a Friday and then rally 1% on a Monday you are coo coo for coco puffs. Markets are a coin flip from day to day, so when we craft a narrative remember that we are crafting one because heads came up instead of tails. Actually isn’t the heads side heavier than tails? Always bet on heads.
After the open it was all consumer all the time. We have such an amazing consumer team here that we gotta talk about their names when we can. HD, WMT, TJX, DKS, URBN, all of those were in the news in some way. URBN fell 3% and bought a pizza chain so God only knows what’s going on there. I mean when ‘m hunting down a hipster t shirt with “Vote Galactic Empire” on the front I’m ALWAYS jonesing for a slice of ‘roni. HD rose 4% because when it comes to retail, nails and iPhones are the phi slamma jamma du jour. Did you know that since 1982, homebuilders have outperformed the S&P500 more than 75% of the time from Nov to Jan? (h/t Charles and Wojs) TJX gained 3% because when you think Maxx savings, you think TJ. DKS dropped 9% because maybe more people are buying baseballs online? I don’t know, shopping at places like DKS and Sports Authority always feels a bit disjointed. There’s never enough employees, you wander these big aisles in between tent poles and canoes hoping to find a pair of workout shoes you like, you finally find the shoe section and there’s like 4 pairs of shoes with none in your size and no one working there, then you walk out disappointed and start searching for it online. But hey, they do have like 58 kinds of baseball mitts! What am I leaving out….oh WMT. They reported last night and managed a 3.5% gain because the freaking stock is down 40% this year. Who slams WMT for 40% in a year? They aren’t researching flavonoid suppressing drugs people (I’ve always wanted to work that word into a recap. I don’t even know what they are to be honest). By lunch we had endured a few ups and down to land on 2,060, up 37bps. I could tell you a story about the morning but it wouldn’t make any sense, we’re winging around for no particular reason right now.
The rest of the day was ugly. There were reports of a failed attack in Germany and any time that kind of stuff hits the wires you know people are going to get closer to home. We closed at 2,050, down 13bps, but that was WELL off the highs. The big winner ended up being ARG who got a takeout offer from Air Liquide (great name). M&A in the industrial / material sector? We’ll take it. I don’t know my friends, there is no real theme to the market right now. It’s basically changing its mind as much as a teenager in clothing store so it’s hard to have a solid opinion on which way it wants to go. Price action feels so random and any narrative you read is going to be changing by the minute. Are we really going to go thru all these ups and downs to close an entire calendar year at unchanged? Sure starting to feel that way. Thank god I didn’t stop reinvesting those dividends!
Final Score: Dow +4bps, S&P500 -13bps, Nasdaq +3bps, Rus2k -25bps.
News Highlights:
- Succinct Summation of the Day’s Events: A bit of follow thru from yesterday’s rally but we failed at the 200 day. Scary headlines did the rest. Basically a flat go nowhere day.
- Put this in the “things you see at a top” category: “U.S. corporate executives and directors have pledged at least $15 billion of their own company stock holdings to secure personal loans, in spite of recent examples of these arrangements creating bigger losses for other investors during selloffs.”
- Where do we think this chart ends? 50%?
- Another solid link from Josh. In order to be great at managing money you gotta learn to be good first. “As an alternative, I would like to cite the approach of a major mid-West pension plan whose director I spoke with last month. The return on the plan’s equities over the last fourteen years, under the direction of this man and his predecessors, has been way ahead of the S&P 500. He shared with me what he considered the key: “We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.”
- Saw this oldie but goodie movie on cable the other day, forgot how great it was. What do we think the combined net worth of these guys was after graduation. $10B? 20?
- What’s different about the latest housing boom? Less burdensome debt. “The current run-up exhibits a less-pronounced increase in the house price-to-rent ratio and an outright decline in the household mortgage debt-to-income ratio—a pattern that is not suggestive of a credit-fueled bubble.”
- Bloomberg makes the case that everyone should calm down about tech IPOs. “Look at Bloomberg data on companies globally that have priced since the beginning of 2010 at $50 million or more: The performance of tech IPOs is middle-of-the-pack. Energy companies have performed the worst in the same time period, while industrial companies have performed the best. The financial sector, which includes REITs, saw the highest number of IPOs in that time and the largest offer size overall.”
- Christmas gift here we come!
- I swear to you, SWEAR TO YOU, you will not see a crazier picture in November (maybe December too).
- Actually wait…(guess I’m not sleeping at Disney anymore)
- I had so many of these toys. So many. Retirement would’ve been set for only $10 a toy.
Since it’s almost winter I figured I’d end tonight with easily the worst fall I’ve ever seen on a ski slope. The sound really makes it so put on those headphones!
Have a good night.