Looks Like the Pundits Never Change!
Equities start the day lower as everyone starts complaining that Tech stocks are only up 25% YTD. You know what I love about market comments? Other than the non-stop flip flopping? The irony…the sweet sweet irony. For the longest time everyone was concerned that “the market is being led higher by only a few stocks, FAANG in particular”. Never mind that an equal weighted S&P500 just made a new all-time high (shhh, no one likes facts that contradict a good story). Highly popular growth tech stocks got smoked on Friday and now people are worried about the market being….a bubble? Wait…….wait….tech stocks go up and “the rally is fake” and when they go down something must be wrong and we should be freakin? Looks like the pundits never change! Anyway, put me in the camp that believes a tech rotation is healthy, that we need some of these big chunky gains to be spread around on other sectors like consumer or banks or industrials. Amazon, Google, Netflix, Apple, all of these are amazing companies. They are literally mapping the future before our very eyes. These companies are so firmly entrenched in their position that they are practically immune from competition. But what they are not immune from is the fickle nature of flip floppy investors. “Profit taking” is one of the lamest stock market phrases ever but in this case it might just be what’s going on. When someone big decides that 35% in 6 months is enough for them they sell in SIZE and that drives a few others to join the party. It’s not scary, it’s not the end of the world, it’s just Skynet profit taking. Let’s see how the rest of the week plays out before we say Tech is dead in the water.
After the open, Friday’s “if it’s up, puke it” market came back in spades. Selling, selling, and even more selling. If it was up big on the year it was getting shellacked. Look at ALGN for crying out loud. They make those invisible dental things you wear so you can have a smile like Tom Cruise. Why was it getting punched in the teeth? Because it was up 56% YTD. That’s it. I mean the thing is even being added to the S&P500 for crying out loud. The SOX got thrown in the hamper, FAANG was defanged, and Health Care took a shot in the keister. What were the big winners? Energy for one, I guess the sector can go up. Under Armour rallied! Under Armour! A Consumer name! Hallelujah. Rotation….it’s not just for State Fairs anymore! So why has this rotation been so vicious? Algos and Systematic strategies my friends, computers make a decision and we all watch the carnage play out. Who can’t wait for a low touch / algo drive / trader-less world? Yea me neither, even though its steamrolling in that direction. Anyway, the “sell winners buy losers” trade ran out of steam around lunch and we worked our way back to unchanged. Would it last? Stay tuned to this bat channel to find out (RIP Adam West).
Well, it kinda did and kinda didn’t. Tech wasn’t a complete disaster but it was soft again. Nasdaq finished down 52bps and the S&P finished down 10bps. Look, sometimes diamonds sink and trash floats, it happens, it’s the kind of thing you see when portfolios are churned and someone wants to re balance. In the end I’m ok with all of this, no longer will we have to read about FAANG being the entire stock market (it’s not) or that tech looks like the 2000 bubble (it’s not). We have been so lulled to sleep by the lack of volatility that a giant re-balance trade feels like Armageddon. It’s not so chill, open a Rose and enjoy the start of summer. The shares crash…hopes are dashed…people forget. Wise words from a legendary band. Final Score: Dow -17bps, S&P500 -10bps, Nasdaq -52bps, Rus2k -17bps
Volume was large and in charge. Our desk was better to buy. Buying in Tech and Industrials. Selling in Financials and Retail. Shorting in REITs and Financials. News Highlights:
- Succinct Summation of the Day’s Events: More selling of winners and rotating into something new. That kind of price action isn’t a one day event but I’d expect it to slow down soon. This is still going on by the way
- Guess what Uncle Sam’s largest Financial Asset is? That’s right…all those student loans. “It's 52.6 percent of the total Federal assets. This is about 9.1 times larger than the 5.8 percent for the Total Mortgages outstanding and 5.8 times the size of Taxes Receivable at 9.1 percent.” Does anyone win in a student loan default?
- You know where your best investment will be found? Outside financial markets: “we don’t make our best investments in the financial markets gambling on stocks and bonds. We make our real investments in things outside the financial markets. Me personally? My best investment was relentlessly hounding a California girl during my Junior year at Georgetown. And boy did I invest a lot of time (and money) trying to convince her that I am good enough. In fact, I’m still trying to convince her. She’s not totally sold, but a decade and a half later I think I am starting to make good progress. But one thing I know is that that investment pays dividends every single day which is something that no stock or bond will ever do”.
- I love this punch card idea. I for sure would be down one punch when I called a Bear Market in Jan 2016 (hey at least I own up to it): “If I was named Financial Market Czar one of the first rules I’d institute would be to give every pundit a punch card. You would only get 5 opportunities to call a top or bottom in the markets and every time you made a wrong prediction you’d get a punch. Once all your punches are used up, no more making extreme predictions again”.
- Wanna see what pure, 100% grade A disappointment looks like? No, not my parents face when they saw my SAT Scores, this kid.
- I don’t get San Fran.
- Ok, I’m on board with this being a thing but they need a new term for it because that one sucks. “Do you spend more quality time with your phone than you do with your partner? Are you compulsively checking for notifications and endlessly scrolling through your social media feeds while in the presence of your significant other? If this sounds like you, you may be one of the millions of people experiencing what is a relatively new psychological condition known as “phubbing” that, according to influential new research, may be slowly eroding your relationship with your partner.”
- What an epic little tree
- Ok today’s must read is a 7 part series on the making of Erin Hills. If you are a golf fan you GOTTA read it! Wisconsin is very proud of Erin Hills and Whistling Straits…there’s some REAL courses here people.
We’ll end on a palm sweating video tonight. I think this guy barely missed the rocks last time he jumped…check this one out.
Have a good night