No Man's Land

Equities start the day higher as we continue to explore no man’s land. We’re just kinda stuck in an area between “things are getting a lot better” and “things are rapidly deteriorating”. Given the lack of fresh news we’re supernaturally focused on this “Trade War” thing (is supernaturally the right word there? Probably not. Whatever, I like it and I don’t have an editor). The problem with being this myopic is that we will consistently overreact to every single perceived change in tone. Huawei, a company that 99% of American’s don’t even know exists, has suddenly become the thermometer for how things are going. Are they banned from the United States?  Sell stocks. Is the ban temporarily lifted? Buy stocks. What a joke. I said it in my last blog but economic tension between China and the US is probably the new normal (unless a market event changes that). That being said, can we briefly circle back on another topic? Earnings for Q1 actually beat, in fact they grew nearly 2%, and LPL points out that full year estimates are actually back on the rise. Now could tariffs change their course? Absolutely, and it’ll be imperative to read conference calls in Q2 to see what companies are doing to prepare for them. But you know what? Even in this time of heightened trade tensions there are companies out there executing on their business plans to the best of their abilities. All of the following are within 2% of a new 52wk high: CMG, LULU, V, PYPL, MCD, COST, and PEP. I could keep going but what I’m trying to say is this: doom and gloom about China / US relations isn’t going anywhere anytime soon but neither is the insatiable desire by U.S companies to succeed regardless of the macro environment.   

We spent most of the morning trading higher because, like I’ve said in the past, markets trade on “better or worse” in the short run and the Huawei news was accepted as being slightly positive (though this story strikes me as being slightly negative so *shrug*). I actually feel bad for my business journalist friends right now. When the market is down they have to write “stocks are concerned about an escalation in the Trade War” yet when the market is up they write “stocks gained as fears of a worsening Trade War eased” and often times those two headlines are on BACK TO BACK days. Brutal. Maybe we should all stop obsessing over day to day headlines? Is that too much to ask? Hey, I have a question for you, has there ever been a single person who heard the sound of their own voice and said “oh yea, I love how I sound.” No right? Why do we all hate our voice so much? This really bothers me as I debate launching a podcast for Baird. Anyway, by lunch we trading up around 0.8% led by Materials, Tech, and Energy.

We saw a small selloff late in the session and a close at 2,864 +0.85%. So I asked my esteemed colleague Willie Delwiche what he’s looking at right now for a couple of reasons. 1) He’s a heck of a technician and 2) He tends to look at different things from me so hey, teamwork. First and foremost he pointed out the Valueline Geometric index which basically represents the median stock price in universe of roughly 1,700 names. It’s at its lowest level since January so more damage is being done under the surface than we might think if we only looked at SPX. Second, he pointed out the weakness in Semiconductors which is a pretty good leading indicator. Finally, he noted that breadth has really lagged in the S&P over the past few months and if that continues to deteriorate it might be troublesome for the bigger picture. Now he doesn’t strike me as outright bearish but one of the things I like about him is that he’s always on the lookout for things people might miss which could point to a broader weakening in the tape. I guess we’ll see how things evolve over the next few months but one thing’s for sure, trade tensions are not getting better so let’s see how the market adapts to that.         

News Highlights:

Tonight we’ll end with People being awesome! I love people, especially you because you invite me into your inbox and let me rant about markets / show you educational links and funny videos. I love you so much  *SOBS*

Have a good night