The Clown Car Revs Up For Another Trip Around The Ring

Equities start the day higher as the clown car revs up for another trip around the ring. What a week we just lived thru!! A whole load of wonky price action that pushed us up 1.8% and then down by 1.8%. Started the week at 2,767 and ended the week at 2,767. What did that really old British guy say? Sound and fury signifying nothing? We have ourselves a real live correction going on and this rolling bear market has left U.S. Equities as the last asset class generating a positive real return this year (h/t MS). Whoa…what the heck happened? What is everyone so worried about all of a sudden? Well my friends the list is long and distinguished including such fan favorites as China, Rates, Italy, and Middle Eastern geopolitics. Now you guys know I’m a simple dude, most of the things I love about life aren’t very complicated. I like walking thru leaves, eating Peanut Butter and Jelly, hearing the voice of my children, talking about Finance and markets in an easy to understand way, and sipping on 1964 Chateau Margaux. When it comes to macro analysis I also like to keep it simple because the more complex a model the more garbage it is. Jobs, Consumption, Housing, those are the things I like to watch to gauge the temperature of the economy and by proxy the stock market. Housing, along with unemployment, is one of the best leading indicators we have to gauge the health of the cycle. It has, in a lot of ways, basically imploded (it tends to peak first). Check out this tweet from last week (follow me while you’re there!) to look at the carnage. If housing has peaked (as measured by New Home Sales) recession tend to occur roughly 2 year after (h/t @ukarlewitz).  One of the legs of my trio has been kicked out and that actually concerns me. Does it make me outright bearish? No, but I find it hard to ignore housing weakness right now. All that other stuff is tertiary to the three I mentioned so let’s stay laser focused here. If Weekly Claims bottom and begin to creep higher (with continued housing issues) I’m changing my name to BearandBaird.

After the open there was no real trend to speak of given the lack of economic data and earnings. I mean this week is insane for earnings, 155 companies in $SPX report (70 on Thursday alone) but there were only 6 today. How has this season been so far? Not bad, 21% EPS growth and 7% revenue growth but that revenue number is the slowest of the year so I guess we have something else to keep an eye on. Movers and shakers were all over the place. Winners  JEC, AMD, PX, GPS, RL, and RHI. Losers NKTR, SCG, BMY, SYF, and WRK. Tech and Discretionary led the way, Real Estate and Financials fell behind. By the way, I need this lotto thing to end pronto tonto. I can’t keep doling out $5 to every group that’s going in together because I’d miss out on getting rich. What’s that? Meg and Matt from Fixed Income Asset management have a consortium going? I’m in, if they roll up in a Maserati next Friday I won’t be able to live with myself. By lunch we were legit going nowhere, 2.758 down a whopping 0.3%. 

The rest of the session brought nothing, in fact it was one of those totally forgettable days in my life. A lot like attending a Chelsea soccer match tbh. I do think the market has to retest that low from Oct 11 (~2710) because that’s just how corrections work. Big steep selloff, people wonder if the bull market is over, big bounce (we are here), a major retest (probably this week) and then the rally resumes post mid-terms. That feels like the playbook to me. Whether housing is a major problem only time will tell, there’s no way to know that in real time so it’s worth keeping an eye on but that’s about it.  Still bullish on year end here. 

Final Score:  Dow -50bps, S&P500 -43bps, Nasdaq +26bps, Rus2k -16bps. 

News Highlights:

Ok look, this video really made me laugh. I’d say it’s one of the funniest video’s I’ve ever had BUT.…BUT….you have to have sound. Must have sound. It’s dumb if you don’t have sound.  So put in those Ear pods or turn up the speaker on your 10 year computer that barely runs and your IT will never replace because I think you’ll like this.

Have a great night.