As The Year Comes To An End...
Equities start the day lower as the year comes to an end. Wait, did you just say the year was coming to an end? What’s that about? Well, there are all of 36 trading days left in 2015…36…and a few of those are around major holidays where no one cares that the market is open. So basically the year is over, pack it up, hope you accomplished your goals because this one is getting long in the tooth. One last event lurks for both Bulls and Bears to look forward to…the vaunted “hiking of rates”. Have you ever seen a market related event flip flop this much in your life? China mentions a slowdown and everyone says “no hike”. The US pumps out 250k jobs in month and everyone says “hike”. It’s amazing to me that a global pool of the best and brightest minds simply cannot figure this out. It’s like watching people try to play Jenga drunk. So what should you do if you think the Fed will hike? One of my favorite bloggers says “buy stocks” How have different asset classes in the past responded when the FOMC has raised rates for the first time? Commodities were the best performing asset; they boomed. The dollar sold off. Equities usually rallied into the decision, then sold off, and then rallied again. In all 6 cases (hiking cycles since 1983), US equities rose in the 3 months ahead of the first rate hike. Note that $SPX sold off by at least 5% in the months after the last 4 rate hike cycles began. So, to generalize, stocks rally into the expected first rate hike, then sell off and then rally again. Look, the economy can handle a freaking 25bps hike. I don’t get the insane angst over such a small move in rates. The PATH of rates is what matters so let’s hope the Fed promises (and delivers) a slow, slow, slow liftoff. Anyway, Baird has its big Industrial Conference this week so I’m coming live to you from Chicago. Sweet home Chicago. God I love this place.
After the open, the market decided to give up ALL of last week’s gains because it has finally found the point where it sucked everyone back in. Last Tuesday we were less than 1% from an all-time high, I even wrote about how crazy that was. The problem is, once people like me start salivating you know that the move has run its course. Too many people were off sides from 1,900 up to 2,110 but that kind of thing doesn’t last forever. Today’s drop was all about punishing the late comers, people who thought Friday’s jobs report was going to be the catalyst to push us to new highs. Let’s talk stocks though, enough of this macro BS. Weyerhaeuser agreed to buy Plum Creek because they’re big fans of Pitbull and Ke$ha. Canadian Pacific might be going after NSC (+10%) because someone has to stop Thomas from his smiling rampage. Apache jumped 13% after receiving an unsolicited takeover from someone. Tell me the low in Energy isn’t near…come on. When $18B companies start getting “hey, would you be interested in selling” letters than you know the worst has passed. Unfortunately those were the only big winners; almost everything else stunk up the joint. PCLN fell 9%, WYNN and JNPR fell 8%, heck even M and JWN fell 5%. Who sells Nordstroms before the biggest shopping month of the year? Have you ever been in the women’s shoe section of Nordstroms around Christmas? It looks like the Thunderdome. Get Tina Turner on the horn because I need her on Michigan Ave.
The 2nd half of the day was mostly sideways on the lows but a late rally saved us from the gutter. So here’s the thing, if you walk away from today thinking “the market is worried about a rate hike” then I might have to send you a strongly worded email questioning your sanity. It’s not worried, the hike couldn’t be more telegraphed. I’ve been begging for a down day and we finally got one. No market recovers 10% from the lows and just keeps ripping into year end. If we get a few of these down 1% days, and a whole lot of sideways days, then we will be ready on Dec 16.
Final Score: Dow -100bps, S&P500 -98bps, Nasdaq -101bps, Rus2k -127bps.
News Highlights:
- Succinct Summation of the Day’s Events: Just a vanilla selloff because we’ve come so far, so fast. Lots of people jumped in above 2,000 so we need to shake the tree a bit. See who falls out.
- I want all the advisors out there to bookmark this link. Show the opening chart to your favorite millennial and let them soak up its meaning. 20 years….100%. (what’s even more eye opening to me is the fact that 1 day in the S&P is a complete coin flip)
- This one is for my PMs out there. Vanguard put out a white paper about active management!! Investing in actively managed funds can be tricky, but outperformance is attainable. In this research paper, Vanguard's Daniel Wallick, Brian Wimmer, and James Balsamo discuss the challenges of outperforming the markets using actively managed funds and examine three factors for improving your odds of identifying successful active management.
- These people are insane
- I’m doing this on Saturday
- So I was wondering….what was the plan here?
- I love this: A record number of people sought guidance in Q3. Individuals reached out for help and guidance in record numbers, both on the phone and online. Fidelity managed over 16 million online inquiries from IRA and 401(k) investors from August 23 - 29. On Monday, August 24, Fidelity received over 160,000 phone calls from IRA and 401(k) investors, one of Fidelity’s busiest days on record. Customers contacted Fidelity for help on a variety of topics, including how to manage their investments during periods of volatility, the pitfalls of converting to “all cash” and the possible reasons behind recent market drops. I wonder how Robo advisors did during that period? Beep beep boop whirrrrrr
- Where were you when I was overpaying for a Bugaboo?
- Please burst…please burst….. “Over the last ten years, the combination of higher tuition fees, more student enrollment, and greater reliance on loans has caused the stock of outstanding student debt nearly to triple. It now stands at well over $1.2 trillion, more than 60% of which is held by the bottom quartile of households”
- Imagine you bought AMZN instead of the SPX right at its PEAK in 2000. (h/t @thestalwart)
We’ll end tonight with a worldwide fail video! Accidents all over the place baby!
https://www.youtube.com/watch?v=5kqh7l3kcSU
Have a good night