Headline Driven Market

Equities start the day lower as we slip back into a headline driven market. It happens from time to time, usually revolving around some kind of scare (the European crisis, Ebola, Debt Ceilings), and it tends to dominate price action for an unspecified amount of time. The scare du jour is this escalation in Tariff / Trade War fears so if you’re pulling up the market and you see it +/- some crazy amount it’s likely the result of someone from China or the US saying something on Twitter. Let’s do a thought experiment shall we?   What would we WANT to see happen in the near term? I guess it would be one of two things: 1) A grand deal that the market didn’t expect thus providing us with a really nice catalyst to global growth or 2) Friday to arrive and the US administration to say something like “China made a great step towards us so we’re going to delay increasing tariffs while this plays out” (i.e. kick the can). What would we NOT want to happen? The nuclear option: a full blown escalation in tariffs from both sides accompanied by a cessation in negotiations thus threatening the nascent recovery in global economic data. Yesterday’s selloff was about giving a higher weight to that last outcome, the market just doesn’t want to see the nukes fly. My gut tells me they’ll kick the can because that’s what politicians always do. But that doesn’t mean the other two can’t happen (Goldman wants you to worry *shrug*). I have no crystal ball here (neither does anyone else), the fact that these outcomes are so hard to weight is why the market is on edge, jittery, acting like it drank 4 double espresso’s and a red bull. I said it on Monday: we have to expect volatility will be increased in the short term while these negotiations play out, something this major can’t be easy.

The market spent most of the day zigging and zagging on trade headlines so I won’t make too much of random noise because nothing really happened. Speaking of noise, I feel compelled to weigh in on the chatter around BYND. If you don’t know what that is it’s a recent IPO, Beyond Meat, that has a pretty juicy looking product on their website. Now look, I don’t know anything about this company financials or whether it’s cheap or expensive or has a bright future or not, what I want to address is the notion that something like BYND signals a “bubble” because of how much it’s gone up since it started trading. Everyone loves to bring up the late 90s when they tell people they are worried about a bubble, it’s almost always cited when a company that hasn’t turned a profit does well from the get go. Nevermind the fact that back then there were like 10+ IPOs a day where the company went up something stupid like 200%+ because they delivered candy to you for free or they had a boatload of “clicks” on their website. BYND is an ESG friendly publically traded “pure play” on a new trend in the food space: alternative protein. That’s it. You know how many of those types of companies exist in the public markets right now? Very few. My view, and I could be wrong, is that it’s just supply and demand for a new type of company/product. Look, I don’t care what it does now, a week from now, or 10 years from now, I have zero view on this companies prospects, I just don’t want people to constantly throw around the term “bubble” because of one data point they cherry picked. 

Allow me to end this somewhat loquacious blog with a thought from Ed Clissold of NDR, who I deeply respect as a US Market Strategist. He recently wrote a piece wondering if the market can handle some bad news. Here’s the money quote: “The quality of any pullback will determine if it is part of a topping process or a healthy reset before a push to new highs. The technical health of the market suggests the latter." Basically what he’s wants to see is if recent events manage to reduce excessive sentiment without doing too much technical damage to things like breadth and internals. If this uptrend is for real then it should be able to weather a batch of bad news, rely on its strong internals, and then continue higher. If not then maybe the ground it was built upon wasn’t that firm in the first place (something they and we watch for). I mean as of now the maximum drawdown in 2019 is only 2.48%, the lowest of any year in HISTORY, we really haven’t even tested this move off the lows yet!

News Highlights:

Way too long of a blog tonight so I’ll skip to the big finish. I have 3 links for your viewing pleasure

The first is my favorite but it’s long. Someone reimagined the fight between Vader and Obi Wan on the Death Star in Ep 4. 6 mins long but absolutely amazing, I was riveted

The second is for my soccer peeps in Europe, especially my boy GK in London. A chilling rendition of “You Will Never Walk Alone” after an unbelievable victory.

The final link is something I’m going to teach my kids to do at their next swim meet.