Our Great Memorial Day Holiday Comes To An End

Equities start the day higher as our great Memorial Day holiday comes to an end. Before I continue, I wanted to take a brief moment to thank anyone and everyone who serves in a uniform and defends those who cannot defend themselves for they are truly the superheroes of our world. "We sleep safely at night because rough men stand ready to visit violence on those who would harm us" - Grenier. So what have I missed? I’ve been gone about a week and noticed the market got shaky all of a sudden, did we discover gravity again? Maybe, maybe not, but there’s another word you need to make yourself familiar with if you have money on the pass line. Taper. Whoa Antonelli…shhhhh…don’t say that too loud or you might spook the market Gods. We’re going to put that word alongside Voldemort as "a word that shall not be spoken" because it comprises the entire Bear case. From what I can tell it goes like this: when the Fed removes its foot from the bond buying gas pedal we are going to have some kind of Battle of Hogwarts where everyone holding stocks gets splinched (I mean you REALLY have to be a Harry Potter fan to be following me here right?) The problem with this is that neither you, nor I, nor Bill Gross, nor anyone in the world knows when its coming, and to try and time it is not only folly, it’s as ridiculous as most of the stuff in these Potter books. So when you see goofy price action based on some talking head saying the Fed might stop doing what it’s doing, try and take it with a grain of salt. Play the game in front of you, adapt to the CURRENT situation, because otherwise you’ll be chasing a golden snitch around that will only lead you in the wrong direction (you know what, I’m not even a huge fan of these books, but it seemed to work right?).

After the open we got a #rip as every economic data point beat (they all beat on Friday too). 10yr yields touched the highest level of the year as Home prices soared and consumers became more confident. The "Present Situation" index hit its highest level since mid- 2008 as mom and pop noticed their 401ks growing and their neighbors’ homes selling in 30 minutes with 8 offers. Remember that a lot of what you see in the stock market is sentiment driven, so as you look around ask yourself "do I feel better about my house/retirement/situation than I did a year ago?" I bet the vast majority of you would answer "yes" which is why we continue to grind higher. We touched 1,674 an hour into the day (up 1.5%) but unfortunately that was the high. We spent the rest of the morning slowly grinding lower as profits were took. I’ll tell you what, if we continue to see price action like this I will almost certainly turn on this market. When you see gawdy intraday reversals off good news then you need to raise an eyebrow a la Mr. Spock (I’m in full geek mode today). By lunch we sat on 1,664 and it felt like gas was slowly leaking out of a balloon.

The back half saw the leak get plugged and we bounced off the intraday low to close at 1,660, up a measly 63bps (felt like we shoulda killed it today). Winners were STT, TIF, ETFC, THC, and TRIP. Losers EXC, NFLX, FE, NRG, and CRM. Decent day for equities but it feels like the real story is probably the move in bonds because they got smoked. Great rotation? Not yet, maybe never, but certainly worth watching. Are they starting to price better growth ahead? Inquiring minds want to know.

Let’s end this puppy with one final thought. Bears would have you believe that the end of Fed stimulus is the end of the rally. They might be right, it will certainly mix things up a bit, but the very same people also tell you that Fed bond buying is bad to begin with! Wait…wait…so let me get this straight: Fed pumping is wrong and is artificially inflating stocks so that’s bad. But when they taper that’s also bad. Hmmm....and I’m supposed to be swayed by this? Let’s deal with this madness when it comes, not every time someone drops the T word in an article. Final Score: Dow +69bps, S&P500 +63bps, Nasdaq +70bps, Rus2k +133bps.

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Have a good night.