Our Journey On The Struggle Bus Continues
Equities start the day lower as our journey on the struggle bus continues. You know I sit at my desk everyday fielding questions like “why won’t the market go up anymore?” and “why don’t you write more?” and “how can you have so many followers when your grammar is so bad? (I need an editor badly). Let’s ignore the last two for a second and focus on the first one. Why aren’t things as easy as they were in Jan when up 1% days happened all the time. Well, let’s rattle these off. We are in a late stage economy with a brand new Fed chair. Right said Fed is going to hike 4 times this year and they don’t care what the market thinks. We have a turbulent White House ready to start a trade war and drop tariffs on anything and everything. Tech is struggling mightily as it goes from “must own” to “source of funds”. We have a midterm election coming in which it appears the party in control might lose its majority. Earnings “beats” appear to have ZERO effect on both sentiment and market direction which has led to the notion that this might be “as good as it gets” for US corporates. I mean how high am I building this wall of worry? Pretty high right? Now we know bull markets climb those walls and we very well might climb this one too but the uptrend has been put on hold while assess just how much Patagonia gear we need (how good was that all you outdoorsy types?) Something has to happen on this chart…a direction needs to be chosen. We are endlessly chopping around a tiring range because the market cannot figure out a way forward. Make no mistake, those kind of markets eventually resolve themselves. I’m still in the camp that it will resolve upward but it appears that earnings will NOT be the catalyst I was hoping it would be. We need something…
After the open, not even a gigantic beat by AAPL was enough to make this dead cat bounce. The fruit company so many people love hating on managed to beat expectations while announcing a $100B buyback. 100 BILLION DOLLARS. What do we think the commission being charged on that buyback is at Goldman or JPM or wherever it’s done? Zero dollars or negative zero dollars? Michael Batnick talked a bit about it here and if you’re in the camp of “why don’t they just spend it on R&D” know this: they’ve spent $41B in the last 19 quarters on guys in a room saying “what should we build next?” What an absolute juggernaut run by a Hall of Fame CEO. Other winners APTV, CNC, GRMN, MA, and CAH. What else? SNAP fell 21% to a new all-time low. Remember in their prospectus how they said one of their biggest risks was that “we may never make money”? Alllrighty then. Other than an app that turns your face into a puking unicorn the two biggest losers were UNM -16% and TAP -15%. Hold on ONE SECOND HERE. TAP down 15%? Miller LITE is a fantastic beer for a warm summer night and we got plenty of those ahead! (don’t @ me with your flowery tasting 7.5% single barrel brewed red chair quadruple saison IPA from the foothills of Oregon. I get it. LITE is still good). By lunch we were waiting for the Fed to give us some guidance about the future.
At 2pm ET we got the Fed meeting and I’m going to point you to Tim Duy because the guy literally knows everything about Fed policy. The market reacted positively to what it viewed as a dovish statement but in the end all those things I mentioned earlier are more important right now. My gut also tells me that “dovish Fed statements” don’t have the punch they used to because we aren’t in “easy mode” anymore. The dollar initially dropped but ended the day on its high but that’s a topic for another recap (not good). Look, if you’re a stock market bull you have to hope that this correction is just the start of a path towards new highs because Bears are going to rage about the first paragraph. Price action is HORRENDOUS right now, it is F level bad. I mean @northmantrader put it best: “The 2 largest companies on the planet with a combined market cap of over $1.7 Trillion have rallied 7.8% and 8.8% respectively in the past 6 days yet $SPX is flat”.
Final Score: Dow -72bps, S&P500 -72bps, Nasdaq -42bps, Rus2k +30bps.
- Succinct Summation of the Day’s Events: AAPL crushed earnings. SNAP didn’t. A somewhat Dovish Fed statement + blockbuster earnings from the biggest company on the planet wasn’t enough.
- Marketwatch on the Wall of Worry: By at least one measure, corporate earnings are the best in nearly a quarter-century. However, the stock market is not enthused!
- Advisors need to find a way to hammer this home to clients: “stock returns are frequently not telling you anything important about the economy, but instead simply reflecting changing investor sentiment. At times investors will pay more for a given level of earnings and at other times they will pay less. What’s going on in the economy is just one factor in that determination.”
- You might look back at this one day and nod at how obvious it was: “Three takeaways from this week's Milken Global Conference, where many of the world's top financiers, politicians and philanthropists gathered to exchange ideas and host dinners: So much optimism, about nearly everything. If Mike Milken had decorated the Beverly Hilton with rainbows, it wouldn't have been out of place. Someone actually said to me yesterday that the rules of economic cycles may no longer apply, and this was a senior capital markets professional with a head full of gray.”
- Jenrette was a famous banker in NY, here are his rules to live by. These two were my favorite: Don’t criticize someone in front of others. Don’t burn bridges (behind you)
- I feel like I need to see this movie just so I can embrace the madness: “As a visual artist and filmmaker, Lauren Greenfield (The Queen of Versailles, Festival 2012) has obsessively documented the ultra-wealthy and the gulf between their extravagant lives and their fundamental dissatisfaction as human beings for over 25 years”
- Imagine using CAPE to make decisions on a portfolio. In the past 20 years, the S&P 500 has sported a CAPE Ratio above its historical average 97% of the time, or 233 out of 240 months. Only in the brief period from November 2008 through May 2009 were stocks deemed “undervalued,” trading at valuations below their long-term average. Dear investors: my plan to buy stocks when they are “cheap” isn’t working like it’s supposed to….
- This whole “move financial services from NY” thing is in like inning 2: In a memo to employees, AllianceBernstein cited lower state, city and property taxes compared with the New York metropolitan area among the reasons for the relocation. Nashville’s affordable cost of living, shorter commutes and ability to draw talent were other factors.
- Boy Coachella looks awesome! Phone….phone….phone….phone….
- I am 100% doing this race. Who’s with me? (I know my guy John Allman is)
Ok look, you guys know I love these end links. I love finding stuff that excites you and makes you go “ooo” “ahhh” “ouch”. Tonight I have one to grip your heart. PLEASE watch this whole thing, it isn’t even that long and you’ll get a huge kick out of it. SOUND IS NECESSARY
Have a good night