Steady As She Goes - That’s The Game Plan

Equities start the day lower as we continue to wait… just wait for earnings. Speaking of earnings, when’s the last time we looked at what the good people from @Factset had to say? No one better so let’s drive this bus over to their website and see what Q4 2016 has in store for us. “For Q4 2016, the estimated earnings growth rate for the S&P 500 is 3.0%.” Ok, that’s not too bad, two consecutive quarters of earnings growth would be very welcome. Revenues have only just inflected positive too so top line is also going in the right direction (h/t Yarrow). Ok how about valuation? “The forward 12-month P/E ratio for the S&P 500 is 17.1. This P/E ratio is above the 5-year average (15.1) and the 10-year average (14.4).” That’s a bit high, sure, but it’s not insane. In the last two bull markets the S&P500 had ~120% and ~65% upside from current valuations so 17x isn’t some kind of screaming sell. What are expectations for 2017 though; don’t we care more about that than some dumb Q4 thing? “For all of 2017, analysts are projecting earnings growth of 11.5% and revenue growth of 5.9%.” Ok, now we’re cooking with gas here people, that kind of growth can easily extend our bull market run a bit longer. All in all I think earnings will continue to be supportive of the market, I mean we just went thru a multi quarter earnings CONTRACTION and that didn’t dent it so why get all worked up now? Steady as she goes that’s the game plan and we’re sticking to it. Speaking of game plans, are you ready for my can’t miss NFL playoff picks? Seahawks, Patriots, Stillers, Packers. How about a can’t miss NFL snack? Right here baby, I got your back

After the open it was downside followed by more downside. Europe had a red day and we’ve failed so many times around 2,280 that the market just needed a reset. Speaking of downside, did you see this story on bond market positioning? Little blurb for you here: “That's how analysts are reading the most recent report of trader commitments, which shows investors are making record bets on higher yields. In the first week of the year, futures positioning for U.S. Treasuries was at an all-time high of 1.2 million ten-year Treasury contract equivalents, according to Macro Risk Advisors head derivatives strategist Pravit Chintawongnavich.” Ok, day 1 market lesson: when the entire world is short bonds they are not going to fall. I mean I guess they could but we all know the crowd usually isn’t right. Same with financials, which was the worst performing sector today (partly because yields fell), everyone is long these things thinking it’s nothing but smooth sailing going forward but you gotta be careful about positioning in the near term! Ok… who went thru Trump Tower today because that should tell us who the winners were. Randall Stephenson of ATT? The stock rose 1%? Makes sense. Hey, if you are a pharma exec why don’t you take quick trip up the elevator, promise jobs and a factory in Michigan or Alabama or Wyoming, and walk out to a stock up 5%... I mean is this so hard? Other winners were TIF (maybe all those execs are stopping at the store next to Trump Tower?), ABC, LLY, and DISCA. Losers were CINF, HES, FCX, PNC, and MU. By lunch the market was heading back towards unchanged because no one could really figure out why we were down. 

The back half brought a bit more upside and a close at 2,270, down only 20bps. Not bad considering we were down 1% early in the morning. At this point we haven’t gone anywhere in a month so if you came here expecting some kind of “new highs” thing you’re gonna be waiting a bit longer. I mean if you were waiting for Q4 earnings and a Presidential inauguration where the guy might mention your stock in front of 2 million people you might wait a week before making a decision too! Final score: Dow -32bps, S&P500 -21bps, Nasdaq -29bps, Rus2k -89bps. 

Volume was a bit lower than average. Our desk was evenly matched. Buying in Retail and Energy. Selling in Retail and Insurance. Shorting in REITs. News Highlights:

Tonight we’ll end with what I consider some kind of ESP / miracle / next level thinking. How did this guy possibly answer correctly? Come on.

https://www.youtube.com/watch?v=uzEWPpPLCds&feature=youtu.be

Have a good night.