R Word
Equities start the day flat as I make my triumphant return to the blogging world. Actually it’s only been a week since my last post, the only people who miss me after a week are…well…let’s move on. What shall we talk about today dear friends? How about the R WORD. Check out how many times the word “recession” has been Google searched over the past 9 days. Incredible, and wholly understandable; we had a Yield Curve inversion that hit the front page of every website known to man including TheYarnBarn.com (yarn prices are economically sensitive, what do you want me to say). Look, here’s the thing with inversions, setting aside how cool it was with Maverick and Goose, they are at best warning signs not red alerts. The last 4 times the 2yr 10yr curve inverted it took, on average, 18 months for a recession to arrive and the market went on to gain 24%, 40%, 32%, and 34%. Does that mean history will repeat and good times inevitably lay ahead? Of course not, nothing is ever the same in markets, which is why good news needs to be viewed as good news. Wait, what? What are you saying Yacht Rock guy? I’m saying that economic data needs to firm up, we can’t look at a miss and say “well that raises the odds of Fed action so whatever, we’ll be fine”. Nope, from now on economic data, particularly in the consumer space, needs to beat expectations or dark shadows will grow.
Since futures were quiet overnight we spent the early part of today drifting around aimlessly looking for something to talk about. Earnings from a couple retailers (HD, TJX, KSS) was about the only thing worth mentioning so let’s go. HD rose 4.5% to trade close to a new all-time high which, to be honest, sounds like consumers are still spending? Frankly this is the kind of stuff I’d rather be watching: consumer names like WMT, TGT, HD, SBUX, etc. Names that normal everyday people go to that would be impacted by worries about an actual recession and not one just talked about in the media. Other winners: MDT, RTN, DHI, and EA. Losers were KSS, DOW, MKC, CAG, and M. By lunch we were sliding lower, down about three quarters of a percent to 2,901 in the S&P which is precisely where we closed. Overall a boring day but the close was notably ugly.
Let’s circle back to the R word one last time: the last recession was kicked off by the wholesale destruction of consumer’s greatest asset: their home. What if we do have a recession but this time it’s led by a decline in manufacturing and capital investment and not, you know, trillions in mortgage debt. I’m supposed to believe it will have the same severity because….reasons? I just hate the notion that because we lived thru one of the worst recessions ever that all future recessions will be the same or worse. Yes, a recession will come one day (our view at Baird is that one is NOT imminent) so you know what the best thing you can do is right now? Prepare. Talk to your advisor about what your portfolio might do in a bear market. Talk to them about a spending plan in a tough economic environment. Financial planning is an ongoing thing, not something you fire and forget like a heat seeking missile. Call them up and if you don’t have one shoot me an email, I’ll point you in the right direction!
Final Score: Dow -60bps, S&P500 -80bps, Nasdaq -70bps, Rus2k -60bps
News Highlights:
- This cartoon is the reason why I like making fun of markets from time to time. It’s ok to be light hearted in an otherwise serious business.
- From the “doesn’t look recessionary” file? (h/t Urban Carmel)
- I wanna goto Denver ASAP (time to call the Baird Denver office): “Summer may be ending, but the season of hard seltzer is not. The first official festival for the defining drink of 2019—dubbed Fizz Fight—will take place in Denver, Colorado, on Saturday, September 14 of this year.”
- So it turns out first born (and only) children are more likely to be CEOs than others. Blah, I got hosed" “One pattern that emerged from Henderson and Hutton’s data was that firstborn and only children seemed to have better odds of becoming CEOs than latter-borns did: Nearly half of the CEOs they studied were the oldest sibling or an only child, which is, the researchers note, higher than this group’s share of the population born between 1920 and 1959, when most of these CEOs entered the world”.
- FOOTBALL season is back! Your boy is bringing the tailgating goods right here
- We talk about bull markets in stocks all the time but the last 40 years in bonds has been absolutely incredible: “For close to 40 years now, long-term bonds have given investors nearly 10% annual returns. The S&P 500 has done 11.2% per year since 1981. The worst drawdown since 1981 for long-term bonds was roughly 16%. The S&P 500 did more than that in a single day in 1987 and has been cut in half twice in that time.”
- On the long side but this is an interesting article on luck vs hard work in life: You can increase your surface area for good luck by taking action. The forager who explores widely will find lots of useless terrain, but is also more likely to stumble across a bountiful berry patch than the person who stays home. Similarly, the person who works hard, pursues opportunity, and tries more things is more likely to stumble across a lucky break than the person who waits. Gary Player, the famous golfer and winner of nine major championships, has said, “The harder I practice, the luckier I get.”
I have two briefs clips to end on tonight
The first is one of the most beautiful things I’ve ever seen, watch this on as big of a screen as you can.
The second is one of the scariest things I’ve seen in my life.
Have a good night