It is REALLY Hard Not to be Deliriously Bullish Right Now

Equities start the day higher as another October is upon us. Long time readers know my opinion on this month and the holiday it features but if you’re new to this goat rodeo let me clue you in: Halloween is the best holiday we celebrate, everything else is a distant second. We’ll talk more about this as it approaches but if you disagree with me just know that you’re wrong. Ok where are we at to start the month? Up 13% in the Dow, 12.5% in the S&P, 21% in the Nasdaq, and 10% in the Russell 2000. To quote Keanu Reeves “WHOA”. Hey, have you ever heard of the Value Line Geometric Index? It’s not exactly a household name but I think we need to talk about it for a second. My fantastic colleague Steve Holt created this chart so click that link and let’s talk about being average (I’m so good at that). This index is equal weighted and based on a geometric average so the daily change is the closest to the median stock price change. Man, that’s a mouthful, what does it actually mean to those of us who slept thru stats class? The index measures the median stock price of companies listed on the American Stock Exchange, Nasdaq, NYSE, and Toronto Stock Exchange and it’s making a new high which means the median stock in the index is now making all-time highs. Median, down the middle, not the fancy high flyers who make $1000 phones and endless dongles (I love that word). Breadth….breadth….breadth. Say it with me. Bespoke also noted that the cumulative A/D line in 9 of the 11 sectors in the S&P saw new high in Sep with 6 of them in the last week. WHOA. It is REALLY hard not to be deliriously bullish right now, someone stop me before I make Fintwit history for signaling the top. 

After the open we got a rager of an ISM Manufacturing print, 60.8, the highest number in over a decade. Hey, you know what ends bull markets? Recessions. Guess what doesn’t usually print in the 60s before a recession? That’s right, ISM Manufacturing. In fact, take a look at this chart from Goldman, ISM trends into the mid 40s before a recession. When ISM printed 61.4 in May of 2004 it took 3 more years and a 40% return in the S&P500 before the economy slipped into an abyss. Heck, you could even argue (and some have) that when ISM Manufacturing slipped to the mid 40s in late 2015 we HAD a bear market. 2nd oldest bull on record? Nope, I’ve moved into the camp that Barry occupies. Rotation is still the soup du jour, FANG got hit again as it appears people are still using them as a source of funds to buy other sectors like Energy and Financials. Look, that rotation is HEALTHY, I love to see it especially on days when the market rallies. Winners FLIR, GM, INTC, SITE, and C. Losers JWN, M, MGM, XRAY, and CMG. You gotta feel bad for JWN and CMG right? One whips around on headlines about a buyout being on/off and the other apparently makes really bad Queso. I mean how can you screw up Queso? Its liquefied cheese for crying out loud, that’s like screwing up chocolate and peanut butter. By lunch we were grinding higher, up 0.3% because that’s what stocks do in a raging bull market.    

The rest of the day was more upside and a close at 2,529, up 0.39%. Good macro data, that’s the kind of stuff you want to see in a Bull market. Good earnings, that’s the kind of stuff you want to see in a bull market. We have both right now. The table is set for a 4th quarter rally and the only thing I worry about is sentiment. Markets don’t go up or down in a straight line, we should expect some kind of weakness as everyone chases these new highs but I truly believe it will be transitory (I could be a Fed governor!!). The entire world is firing on all cylinders and there are so many charts that look so good (small caps for example). This rally isn’t being driven my tax reform, it’s being driven by all the things I just mentioned. Make no mistake, we’re gonna get to eat our sundae, it’s gonna have hot fudge, sprinkles, and whip cream.Tax reform would be the cherry on top, nothing more.   Final Score:  Dow +69bps, S&P500 +39bps, Nasdaq +32bps, Rus2k +1.25% (SMALL CAPS)

I wanted to end on one single link because the events of the past 24 hours have devastated me. There are times when words comfort and times when words seem pointless. Right now words fail me because I cannot fathom why evil consistently rears its head in our world. I do know this…we can’t live our lives in fear. “Most things worth having live on the other side of fear”. My link to you is 5 minutes long and I implore you to watch it. Take 5 minutes out of your busy life, this one is worth it.  

https://www.youtube.com/watch?v=TmkUwToXLEc

Have a good night.