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:
- Succinct Summation of the Day’s Events: Financials led us lower but an afternoon bounce dulled the pain. The market hasn’t moved in a month.
- Howard Marks latest memo! My guy doesn’t like people who try and forecast macro. “Now forces like technological developments, disruption, demographic change, political instability and media trends give rise to an ever-changing environment, as well as to cycles that no longer necessarily resemble those of the past. That makes the job of those who dare to predict the macro more challenging than ever. Finally, I want to describe a great phone call I received this past spring, from a sell-side economist I worked with in the early ’70s and have stayed in touch with since. “You’ve changed my life,” he said. “I’ve stopped making forecasts. I study data and report on my inferences. But I no longer express opinions about the future.” Mission accomplished.”
- I mean how can we argue with Marks, who would’ve predicted this happening?
- There’s a new risk to stocks / sectors and it can happen at any moment. Tweets from the President!! “I’m not trying to criticize Mr. Trump. Twice in less than a year, remarks by Hillary Clinton crushed biotech stocks. My only point is that in the soundbite/Twitter age, there are new risks to stocks.”
- Remember when I mocked Bezos on Tuesday about the fact that small businesses create the majority of jobs in our country? Yea… I think he was listening: The e-commerce giant said Thursday it plans to create 100,000 new full-time, full-benefit jobs in the country over the next 18 months, expanding its US workforce to 280,000 -- up 56 percent from 2016.
- Whoever made this has a good point right?
- As a fan of history I dig this picture a lot and think the first one is the best.
- Been awhile but Things Michael Should’ve invented #203.
- Yardeni dug into that small business optimism thing from a few days ago: “Aren’t these just a bunch of anti-government conservatives who are running minor little businesses and are looking forward to paying less than their fair share of taxes under the new Trump administration? Not so fast: Small businesses account for a very significant portion of jobs and hiring. Consider the following….”
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.
Have a good night.