Christmas Season Begins?
Equities start the day higher as Christmas season begins. Nov 2? Yep, Target and Wal Mart are nothing but red and green baby. It’s the most…wonderful time….of the year. I hope everyone had a good Halloween, I sure did. My wife and I dressed up as Disney tourists and people wondered “how much of that did you buy for the party and how much did you already own?” No comment. Earnings are almost done and this week features 102 companies in the S&P which will pretty much wrap things up. How did it go? Well, about as mediocre as they could. We are going to see the first back to back quarters of earnings declines since 2009 but the market doesn’t seem to care. Crazy right? That must frustrate Bears more than that loss to Minnesota. What does the market care about? It’s still China and the Fed, with a smattering of sentiment to top things off. As long as China can stabilize here I think we’re fine. They need to find a level of growth they can maintain even if it’s below historical norms. If that happens we’ll move on from the Armageddon scenario and embrace a world of slow, modest growth. As for the Fed we have one last catalyst on the horizon and it’s a few weeks before Christmas. So while the big box retailers are trying to sell you plastic toys you don’t want and tacky decorations you don’t need, the real gift will be unwrapped on Dec 16. I know that’s a long time to wait but we have Turkey and stuffing to hold you over until then. What an amazing few months we have ahead of us, so much to look forward to. I love these last 8 weeks, they’re composed of: family, food, adult spirits, Fed decisions, football, crisp days, cold nights, performance chasing, and 85 viewings of Christmas Vacation. “Dad, that wouldn’t fit in our yard”. “It’s not going in our yard Russ”.
After the open, we got the weakest headline ISM Manufacturing report since 2012 and the market RIPPED higher! I love writing sentences like that, only the stock market can rally on horrible data. “Hey, my best friend got dumped by his girlfriend but he’s on Cloud 9!” Doesn’t work in real life right? Anyway, we’re at the point where slow manufacturing data isn’t a surprise anymore so the market shrugged it off. Lots of single name movers so let’s chat it up. HPQ rose 12% because breaking up the company is better than overpaying for mediocre acquisitions, DO jumped 11% on earnings, DYAX popped 28% after agreeing to be acquired by Shire (always think of the Hobbit with this company), Visa fell 3% after buying Visa Europe, and CMG dropped 2.5% because bad chicken mess you up (best episode ever). Oh and any Trekkies up on this recap? CBS is boldly going where 50 seasons of other goofballs went and plans on launching a new Star Trek series soon. I’m in, bring me my pointy ears. So it was a decent morning, up 0.6% to 2,093 by lunch. By the way, other than the holiday season you know what period we are entering? Money making season… BOOM. Look at this stat by Bespoke: “The last 50 Years of SPX Nov 1 to April 30, average gain: +7.3%. May 1 to Oct 31, average gain: +0.03%”. So there you go, most of the gains are between now and the end of April so don’t do anything crazy, like this. I weep for our movie going humanity.
The back half of the day was a rocket ship higher and by the time the bell rang we had recovered 2,100 on the S&P. Honestly, it is amazing how far we have come from the Aug/Sep lows when the death of this market was all but sealed in stone. My best take on this price action is that there are 1) still way too many people who bailed and need to get back in 2) still way too many shorts 3) still way too many people geared for a recession 4) still way too many people who think earnings were a disaster. However, that being said, we won’t continue this pace for much longer. All of the indicators that screamed “oversold” are approaching “overbought”. @ryandetrick points out that Nov starts off awesome but generally spends the bulk of the month going sideways as we approach the holiday so let’s not get over our skis. So where do we these last two months? I bet we close +/- 3% from this exact level. The summer move was an overreaction, we’ve erased it. But the recipe for going higher just isn’t there so I bet we will sit here and churn for the next 8 weeks. Boring I know but them’s the breaks. If people missed the August / Sep dip they might just live to regret it, certainly that’s what the market is telling us right now.
Final Score: Dow +94bps, S&P500 +119bps, Nasdaq +145bps (new 15yr high), Rus2k +208 bps (so much for this one lagging).
- Succinct Summation of the Day’s Events: All I can say is wow, I guess there are still people who are off sides from the low. Almost the entire day was up and to the right, incredible first day of the month.
- Today’s must read is Merkel’s “One Dozen Thoughts on Dealing with Risk in Investing for Retirement” I’m sure people should just use a robo advisor though…makes sense to trust your family’s wealth to a machine that uses portfolio theory to quarterly rebalance.
- Academia vs the Real World, or why paper trading is dumb. “When new investors are just starting out in the markets they’re often told that a paper portfolio is a good way to test out a strategy without putting real money to work. This one sounds good in theory but is fairly useless in practice. The thing is that there are no simulations that can prepare you for the emotions you feel when investing actual money in the markets. The feelings you get from making or losing money can’t be simulated. The same is true of those who try to turn research into an investable strategy.”
- Byron Wien sums up the current Wall of Worry. Maybe this is why the market keeps going higher, people are still looking for why it should go down. “Unless the economy strengthens and either earnings begin to show a sharp improvement or some of the problems I discussed diminish in importance, investors are likely to remain cautious. Despite my concerns about uncertainty, I still think the S&P 500 will end 2015 comfortably in positive territory in anticipation of a better earnings environment in 2016 and in light of current reasonable valuations.”
- They are definitely going to need a bigger boat
- Best goal of 2015. Never touches the ground!
- Gotta love lazlo, he sticks to his guns and nails it. At the depths of a summer swoon, the president of Birinyi Associates in Westport, Connecticut, predicted that stocks would “come out OK” after a six-day rout sent the Standard & Poor’s 500 Index tumbling into a correction. Since then, the gauge has rallied 11 percent, with the bulk of the gains coming during an 8.3 percent rally in October. “There is still an overhang of short positions in U.S. equity futures, which if unwound could propel U.S. equities even higher from here,” they wrote. “While the position reversal by CTAs points to capitulation by bearish equity investors, the overhang of short positions in US equity futures suggests that there is room for further short covering.”
- What did the best in Oct? Large cap stocks. “After US equities had their best month in four years, you can bet that there were some big winners during the month. There were also a lot of winners, especially in large-cap stocks.”
- Kostin of GS on earnings: “Adequate earnings, dismal sales”. Isn’t this ALWAYS the story of earnings? Feels like it has been for years now.
- Even the city part of the Maldives looks amazing.
- Luckiest person on the planet that day.
- I don’t know, probably too bright in the morning. I don’t like it.
- This right here…its important.
We’ll end tonight with a classic fail from 2012. Best way to describe what it feels like to be bearish right now.
Have a good night.