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).   

News Highlights: 

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.