The Great November Quagmire

Equities start the day lower as the Great November quagmire sucks everyone in. What exactly is the market doing right now?  Does anyone know? Earnings are over, the Fed decision isn’t until December, economic data is scarce, and yet the past 8 sessions have been mostly lower. I guess we can chock it up to all the typical labels: profit taking, more sellers than buyers, exhaustion, commodity weakness, buyer strike, blah blah blah. All the stuff you read in a headline or in a tweet that basically act like empty calories (my favorite type of calorie). Instead of talking about the same thing over and over again let’s ask ourselves the following two questions (and try to answer them quickly without putting you to sleep) 1) What does the upside look like and 2) what does the downside look like. Here we sit around 2,075 in the S&P and most of the super smart techy finance geeks think the index will do $122-$125 next year in earnings. A 17x multiple on $125 is 2,125 so one could say the upside is as meager as a dinner of cottage cheese (which I love btw). We would need some kind of global economic acceleration to get either the multiple to expand or earnings to go up…ugh. The Fed is optimistic about the economy and maybe China / Draghi will get things done abroad but come on. It’s possible I guess but likely difficult.  What’s the downside? Basically China imploding and finally dragging the US into the negative phantom zone. Again, it is possible but do you think any of the high ranking big wigs in the Communist party would let that happen without trying out extraordinary measures first? Probably not. So what’s the main takeaway then? Why haven’t I wrapped this up yet? Ok here it is:  we are going to continue to grind like we have the past few years. BOOM. COP OUT CENTRAL BABY. I just don’t see the big upside or the big downside playing out. I guess we are stuck with modest growth and the hope that economic powerhouses across the sea can get their act together. I know that’s not glamourous but it’s the scenario we face.  So all we can do is keep searching for good ideas amongst the molasses.

After the open we saw a continuation of this miserable leaf grinding, soul crushing price action that’s been with us for a week. Down and to the right for no reason at all which makes everyone think “oh it must be rate hike fears”. Yet banks were down and treasury yields were lower so damn the narrative, full steam ahead! Hey I didn’t get a chance to talk about this yesterday but I’m sure you saw the move in M off earnings. Lots of people are trying to paint broad strokes about consumer weakness from some of these names (M, WMT, KSS, etc) so should we bail on this sector? Guess what the last place I’d look at to gauge the health of the U.S. consumer? Mall stores, particularly one’s that don’t sell iPhones or Kohler toilets. I just don’t think a store that resides in a place that less and less people go to is a fantastic barometer of consumer spending. I might be wrong but is there any doubt that the ways people acquire consumer goods has been changed forever? Would be a good discussion for another recap but I gotta move on. 6 different Fed speakers weighed in today so let me sum them all up for you: we are looking to hike in Dec. Some cautious commentary but they mostly pointed to meeting their targets soon. We retested the 10month MAVG (huge level) of 2,055 and managed to bounce off it. Whew. By lunch we sat on 2,058 holding our breath for a higher afternoon.

Which……….never came. Every small bounce got hit and @ryandetrick chart of 2015 vs 2011 has turned into a Nostra freaking damus situation. If this thing continues on its course we should see even more pain before Santa Claus finally arrives to save the day. Commodities were once again weak and my hope that Energy has bottomed might be a smidge premature (put me in with everyone else I guess).  Winners: VIAB, VRSK, PVH, ATVI, NEE, and HCN.  Losers AAP, MNK, CNX, FCX, GWW, and OI, heck anything in the Energy, Industrial or Materials space that recently bounced. We closed at 2,046, down 1.3%, on a day where no one expected anything like this to happen. We also lost the 10 month MAVG again so that concerns me greatly. Well, look on the bright side, at least we aren’t overbought anymore!  I honestly don’t know whose selling stocks here given we chased this puppy from 1,800 up to 2,109 just last month. Why sell a week later when nothing incremental has really appeared at all. Odd price action, very odd, apparently everyone is weak kneed right now. I wouldn’t haven expected the S&P to drop 3% in the first half of Nov at all. What a mess.  

Final Score:  Dow -144bps, S&P500 -140bps, Nasdaq -122bps, Rus2k -196bps.  

News Highlights:

We’ll end tonight with something I didn’t even know existed.    How did I miss this on Spring Break?

Have a good night.