Stocks Have Risk

Equities start the day higher as we get another one of these “but it has to bounce right?” type of moves. You know what the most frustrating part of these selloffs is? What really grinds my gears? No, not the whole “losing money” thing, come on, I’m talking about the phone calls from family and friends, the one’s where they call or text you saying “what in the #$#$@#$ did you do to the market!” I love those so much, actually no I don’t love them, I detest them and not for the reason you think. Yes it stinks when someone you know loses money and they are frustrated over it but what people fail to grasp is this whole “equity risk premium” thing. It’s a fairly complicated term for the average person to understand but in the end you earn excess returns over, you know, cash, because STOCKS HAVE RISK. This little downdraft we are living thru, along with every other one in the history of markets, is how you earn that premium. Sitting here suffering at the hands of oil sellers and fidgety stock market participants is how $1 grows so much over your life. Yet the pain of watching your account slowly bleed overcomes people so much that they ignore that fact and call the one person they know in this industry to, well, complain about it. Yet when their account goes up 213% since 2009 they are nowhere to be found! Where’s the love? Where’s my free drinks when the S&P rises 28% in a year!! I don’t know, I’m partially venting here given the insanity lately but I have no other outlet than you fine people. By the way, have you ever seen more recession calls due to an 8% drop in the S&P than you have in the past two weeks?  Holy cow, not only is there a new one every single day but even level headed people have started to turn to the darkside. Take a look at this chart from MS noting big drops in SPX without a recession. Couldn’t this just be a garden variety correction?

After the open we saw horrible, gut wrenching price action…again. Same story different day.  An overnight bounce gets chipped away at all day until it finally relents under overwhelming selling pressure. Oil falls, then the Russell 2000 falls, then the Transports fall, then Credit spreads widen, then the S&P gives up the ghost. I wish I had better news for you but the entire first half of the day was a goat rodeo. What fell the most? Names like TWTR, SQ, GPRO, YELP, all the hot growthy tech stuff  is actually acting WORSE than energy names. Speaking of energy names we got more fresh lows there than temps in the Midwest over the past few days. CHK, ESV, COP, NFX, WLL, MRO, NBL heck I could just list the entire sector, all act puke-tastic.  Winners were VIAB, NFLX, M (einhorn likes it), HCN, and CPB.  So yea, a bit of media, a retailer with hedge fund backing, a REIT, and chicken noodle soup. Speaking of winners, our fantastic sales team in London did a little screen for what names are making RELATIVE highs compared to the S&P. Here’s a few of them for you to ponder: JNJ, T, KO, MCD, SBUX, KMB, ADBE, ACN, LMT. If you are looking for “leadership” or “what is working as the overall index shivers” those are a few of the names. By lunch we were headed lower faster than a German U Boat during the Battle of the Atlantic. DIVE DIVE  WHOOP WHOOP

The afternoon saw retest of the 1865 level and a hold! If there’s any silver lining to be found here it’s the fact that we’ve retested the August lows twice now and held both times! What would we need for the market to stabilize? I would think crude oil would have to trade sideways for about a WEEK or more plus transports and credit would have to show signs of stabilization.    Earnings, for now, don’t seem to matter because all we do is trade off the price of crude on an intraday basis. That has to break down, that correlation has to end and then MAYBE we can put the pieces back together.  Until then all you need is a Cl1 quote, that’s it. I want to wrap up today’s recap with a deep thought, something you will probably disagree with but here goes:   Hotel California is one of the most overrated songs ever to grace the airwaves. Glenn Frey, the world will miss you, you were a generational talent, but I hate that song so much. Overplayed doesn’t even begin to describe it, please just make it end.  Hotel California and Brown Eyed Girl need to go away forever (sorry Van M)   

Final Score:   Dow +18bps, S&P500 +5bps, Nasdq -26bps, Rus2k -128bps. 

News Highlights:

Tonight we’ll end with a teenager doing teenage things.  Like being dumb…for no reason at all… 

Have a good night.