Did The Grinch Win Last Christmas?
Equities start the day lower as Retail Sales implode. You read that right, we got a look at December Retail Sales and they unexpectedly fell the most in 9 years. Is that right? “Unexpectedly”?? Dear reader, do you remember what last December was like? Do you remember how the market went down every single day? Do you remember reading stuff like this in the freaking LIFESTYLE section of the NYT? (h/t @michaelsantoli) For crying out loud, it was the worst December since the GREAT DEPRESSION, I think we can rightly assume that people were a little skittish about giving a gift all 8 days of Hanukkah. I remember saying to my wife “no stockings this year, my PA is dropping faster than this guy’s life expectancy.” So there’s your look at what people do when the market falls like a brick, they circle the wagons, give someone a card instead of a gift and wait it out. I think we now know why the Fed switched gears and it’s not because of political pressure or any other nonsense you might’ve read about a stupid plunge protection team (it doesn’t exist, but I do love a good conspiracy theory). They saw the slowdown, they have their ear to the ground, heck Jim Cramer was yelling at them nightly to ease off the hawkishness. I think the jury is still out on whether that Dec hike was a policy mistake but at least they recognized the need for rapid change. If they continued on their tightening path they likely would’ve thrown us into a recession. Look, if you want something to worry about try the uptick in weekly claims. I’d argue that’s more bearish than a retail sales number that seems like an impossible outlier.
After the open we got a wild first half of the session. Futures got poleaxed on the Retail Sales number but managed to find stability about 15 mins into the session. Ok, not bad, down 50bps or so, not the end of the world. Then a headline hit that China and the US are still far apart on reform demands and it felt like the day was sunk. But you know what? It wasn’t, in fact the reaction to the China headline was muted. We began to inch higher and by lunch we had erased ALL the losses to trade in the green! USA USA USA. Hey, here’s a headline that I’m sure will spawn a million spicy takes: $AMZN tells NYC to pound sand. Yep, it looks like one bite out of the big Apple was enough for our man Jeff. I think I’ll let smarter people handle the ramifications of this one, there’s too much politics / agendas / raw feelings for a guy in the Midwest to untangle. Hey @JeffBezos, you can always come to MKE, I mean who doesn’t love random -60F days every now and then? Makes you tough like that Lyana Mormont. Winners were MRO, EQIX, VMC, ATVI, and ZTS. Losers IFF, CTL, KO, AIG, and MGM. My gosh Coke fell 8.5%, what an absolute drubbing. How often do you see a 133 year old beverage company put a gap on its chart like their stage 1 drug had 0% efficacy? Ouch. (btw I love the word efficacy, what an underrated word to use on someone you don’t like. “Hey john, your efficacy in emails is appalling, step it up” just sounds so smarmy)
The rest of the day saw endless debate about AMZN and NY with the market closing at 2,745 down 0.27%. Look here’s where I think things sit. My favorite indicator, New Home Sales, started slowing in November 2017 (may have even peaked). We know that New Home Sales tends to peak first in the cycle so that’s important to monitor. We also have one eye on unemployment and like I said, the most important data point today was likely Weekly Claims. Retail sales in Dec was probably a one off but now we have to watch that more closely too. Homes, Jobs, Consumption, keeping your macro view simple allows you to filter out excess noise. I think the Fed being on pause makes complete sense, the data justifies it, they didn’t go dovish because they saw the stock market falling, they went dovish for all of the reasons I just mentioned. All of this doesn’t mean a recession is imminent but these indicators are what smart people watch for a turn in the cycle. In fact Atlanta GDP now is 1.5% for Q4 2018…whoa…let’s hope that slowdown is behind us and the worst of our growth fears is waning like my interest in continuing to type.
Final Score: Dow -41bps, S&P500 -27bps, Nasdaq +9bps, Rus2k +14bps.
- Succinct Summation of the Day’s Events: Tons of news but the market went nowhere most of the day, small selloff at the end. Maybe closing red on Valentine’s Day makes sense?
- I have THREE links tonight that are straight fire. The first is from Ben Carlson where he basically says you want to own stocks even when one of these dreaded “earnings recessions” happen: “From 1930 through 20172 earnings on the S&P 500 were positive on a year-over-year basis 58 times and negative on a year-over-year basis 30 times. The majority of times when earnings were down in a given year, stocks were actually up” Did you hear him? Stocks were actually up the majority of the time that earnings growth was negative YoY.
- The second is from Morgan Housel where he gives us a nice list of “short money rules”. I like these two: 1) Good investing is 50% psychology, 48% history, 2% finance. 2) Wealth is what you don’t see – money that hasn’t been spent, cars that haven’t been bought, jewelry that hasn’t been purchased, stuff that hasn’t been bought.
- The last one is amazing…from Barry Ritholtz about PAYING FOR ADVICE. READ THIS NOW: Financial planning in the absence of an investment strategy designed to implement the plan is a f***ing fortune cookie. An investment portfolio absent the dictates of the goals from a financial plan is like building a house without a blueprint. Neither or these things is worth much without the other. But delivered in concert, they are essential and worthy of a fee for the people who are going to be overseeing both
- Apparently less people are celebrating Valentine’s day but the one’s who do are spending more money. Odd. Also this: “The vast majority of Valentine’s Day dollars are still spent on significant others, but there’s a big increase this year in consumers spreading the love to children, parents, friends and coworkers,” NRF President and CEO Matthew Shay said. Co workers? WHAT? Where are these people?
- Yea, apparently I need to visit the Italian Riviera
- Wait…don’t do it….nooooooooooooooo………yesssssssssssssss!!
- Maybe that retail sales number was a glitch? “Taken literally, this data release would indicate that the consumer sector collapsed in December,” he wrote in a note. “This release is such an outlier and so incongruous with the general trend in consumer spending, holiday consumer sales reports and holiday seasons consumer credit data that it does raise suspicions of data reliability.”
Tonight I have a short, funny video that reminds us to never argue with stupid people. Just move on as quickly as you can (something I'm trying to learn on TWTR)
Have a good night