Can You Blame People For Selling A Bit?

Equities start the day lower for a whole host of reasons so let’s poke fun at them shall we? SPX has been up for 4 days in a row and the DJIA has been higher for 8 sessions in a row so can you blame people for selling a bit? I mean maybe they have Lamborghini payments or Amex payments after they went on a trip to the Portland wine country with friends who all like to drink nice wine from 9am to Midnight and eat dinners where they serve foam and goat eggs. Wait, where was I going with this? Yields are still grinding higher and the 10yr hit its highest level since 2011. Should you be worried about that? I’ll say yes, but not “keep you up at night” worried. As all good finance geeks know, in the present value calculation interest rates are in the denominator so it’s not like we want them to rip higher. HD reported its first top line miss in a while and blamed “weather”. Now I’m as cynical as the rest, when some random retailer that no one shops at anymore says “it rained too much so we whiffed” I just shake my head and mock them on TWTR. But as @jeffmacke pointed out, we legit had one of the worst April’s on record, I shoveled 8” of heavy wet snow after Easter for crying out loud. I’m gonna go ahead and say no one was buying begonias or potting soil in April. Maybe a few people in San Diego but I haven’t dug that far into the report. Look, let’s end on a positive note. The Rus2k is dangerously close to printing a new all-time high and breadth continues to be in the bulls favor. Grind higher, pause, take a breath, start again. We’d all be happy with that kind of price action in May.

After the open, we spent most of the day struggling with rising 10yr yields. Housing stocks? Shewacked. REITS? Smizacked. Utilities? Slamacked. 3.07% by lunch had the entire market like “where do I go from here?” But it wasn’t a wholesale disaster; while rate sensitive stuff acted poorly other sectors of the market actually did fine. The Russell 2000 flirted with green most of the session while Financials led the way for the obvious reason. HD only fell 1.6% so my faith in the investing public going beyond headlines has been reaffirmed, Tesla lost 2.6% after saying they were shutting down Model 3 production for a few days (man the Bears are gonna eat this up) and other than every single homebuilder losers were CELG, TAP, NVDA, and A which fell the most in 13 years. #ThingsCEOsNeverWannaHear. Ok what else moved? UAA actually fought with MAT for the top spot in the S&P and a lot of smart technicians I follow are looking at this one closely. Turnaround stories can take a long time to play out but risk reward (based on the chart) has people perked up (my guy Altschwager rates outperform). By lunch we sat on 2,708 down 78bps. You know what stock hit an all-time high today? Best Buy. $BBY. I swear 3-4 years ago the place was a ghost town filled with CDs, DVDs, and 14 vacuums. I would’ve shorted it thinking “AMZN killed this place” and lost all my money. Kudos to the mgmt team for their strategic planning and execution.

The afternoon saw 10yr yields hit 3.08% so I guess the Fed is now rewarding savers!!! Yay!! We can finally put that stupid criticism to rest. Today was awful for anyone running a risk parity fund but come on, how many people are actually doing that and reading this recap? 0 or 0? We closed at 2,709 down 77 bps as we grapple with ever higher rates. Look, none of us are re-fi’ing again for a long time, get used to the fact that rates have bottomed and the Fed no longer cares what we think. Can stocks do well in rising rate regimes? @econompic shows we can so let’s stop doing this knee jerk reaction thing. Thanks. 

Final Score:  Dow -78bps, S&P500 -68bps, Nasdaq -81bps, Rus2k flat (this is good)   

News Highlights:

• Succinct Summation of the Day’s Events: All we looked at was Treasury yields, hit up the next link for a quick summary
• Cullen says “chill out” : Is it just me or have there been a whole bunch of really scary sounding stories about rising interest rates in the last few months? While some of these worries are warranted it’s important to pan out and take a more objective view of the environment so we can avoid making excessively short-term judgements about what may or may not happen. There’s a lot of people out there who rely on selling you short-term fear in exchange for your attention and your money. So let’s see if I can save you some money and some stress by putting things in a reasonable perspective.
• RIP Tom Wolfe. I read The Right Stuff in high school and it was one of the things that spurred my study of History. “I just want to make sure,” he later said, “that when I walk into a room, everybody there turns around and says, ‘Who in the name of God is that?’ ” Tom Wolfe
• The future of TV looks grim: According to four years of data from Nielsen's Total Audience Reports, every age group except those aged 65+ is spending less time — and in the case of younger Americans, far less time — watching television live or via DVR. Once Boomers stop watching TV that whole system is going to implode.
• You a podcast fan? Me too, check this one out (hoping to start a podcast at Baird one day…one day …)
• How about this quote to silence stock market haters:  “It’s pretty incredible that for years, the same people have been “blaming” the rise on the stock market on the Fed and FAANG and margin debt and now ETFs. As if 91 consecutive months of jobs growth and record revenue, profit margins and earnings can’t be the driving factor.”
• I have an irrational anger for articles that tell me how much I need to have saved by a certain age. Like I get super mad. I wanna live a long, happy life and a certain amount of money is pretty far down my “this is important” list. “By 30, you should have a decent chunk of change saved for your future self, experts say — in fact, ideally your account would look like a year’s worth of salary, according to Boston-based investment firm Fidelity Investments, so if you make $50,000 a year, you’d have $50,000 saved already. By 35, you should have twice your salary, the firm said”.
• Clorox, PG, and KHC are acting like Biotechs with failed drugs. Crazy. “In the last two years, the pace of underperformance has really started to accelerate, causing the sector’s relative strength to fall to an 11-year low versus the S&P 500.  Once again, P&G and stocks like it are as popular as snow in April.  How unpopular is the sector?  Even after the sharp drop in relative strength, one major Wall St. firm just downgraded Consumer Staples to underweight”
• Hey, you, stop making terrible cocktails at home. Make this or this and come back and tell me how popular you are.
• How in God’s name did I not invent this. Brilliant.

We’re going to end tonight on some of the best sleight of hand I’ve ever seen.  

https://www.youtube.com/watch?v=Jy0T-55dru4&feature=youtu.be

Have a good night