A Great Recipe for Alpha
Equities start the day lower because it’s Tuesday. Seems odd right? Take a look at this article by Bespoke if you want to invest in the S&P this year (I love random factoids, by the time its discovered / talked about it up and disappears). Lots to chat about overnight so let’s get right to it! China pulled out the old “when all else fails devalue your currency” play and it rocked capital markets all over the globe. Currencies in Asia wigged out, Treasuries rallied (reduces chance of Sep hike I guess), and stock indices quivered. Should we be worried that another 1997 Asian currency thing is upon us? Not really, that was a widespread and dramatic devaluation so I don’t see a lot of parallels. Google decided that its name wasn’t crazy enough and opted to change it to Alphabet. Yep, you read that right, Alphabet. I’ll put that on the list next to Mondelez as “Top 5 worst company names”. Why did Google choose to undergo this corporate restructuring? Smarter people than I have written on it so read Salmon here and Malik here. Yesterday’s rally was pretty impressive right? 1.3% for no reason other than we were a touch oversold. But that’s been the story of 2015, endless whipsaws in a 4.5% range. Every rally is met with a chorus of “here comes the breakout” and every selloff is met with a chorus of “the top is in”. Until we break this horrendous channel all of this price action, and I mean ALL OF IT, is just noise. But…that doesn’t mean opportunites are scarce. RBC noted that the CBOE correlation index has its lowest close in 6 years yesterday. Flat markets…low correlations….plenty of company specific news….that’s a great recipe for Alpha my friends (I mean look at the chart of ADBE).
After the open stock bulls looked like this. Everyone and everything got run over, especially energy and anything China related. Your favorite company makes tacos and fried chicken that get sold in Shanghai? Pummeled. Your favorite Energy stock was up 7% yesterday? Not anymore. Crude touched $42 a barrel which is right back to multi-year lows. I mean if you crave biotech type volatility with commodity price swings then the Energy space is your bag baby. Winners were few and far between, the aforementioned Alphabet or Google or whatever it’s called was up 4% joined by the likes of MPC, AAL, VLO, and DAL. Like I said before, the biggest losers were energy stocks, materials stocks, and people levered to the dragon like YUM, WYNN, and even AAPL. By lunch we were down 26 pts, about 1.3%, but you know what…that’s where we closed on Friday. Feels like blackjack table in these here markets. Hey, I’m on a 5 hand winning streak, up $5,000, tipping waitresses with black chips and planning out my night at Pure. What’s that? I lost on 20 and now the shoe is on my throat, I’m back to flat and hoping to get comp’d at the seafood buffet? Up’s and down’s all over the place, it literally changes like the summer wind. Came blowin in….from across the sea (I love that song).
The final few hours were spent on the lows and not even Superman could’ve saved this one. 2,085, down 0.95%, ugly all the way around. Hey, here’s a trivia question for you (courtesy of Factset): What was the most cited keyword during this earnings season by companies in the S&P500? The answer: “Currency” (after that was Europe and then China but currency was the top dog). Strong dollar…strong dollar…strong dollar. So yea, you can see why this China move is freaking people out. Does it put the Fed on hold for Sep? Maybe..probably..you’d have to think they are incrementally concerned. I remember the time when bad news was good news, guess we don’t live in that environment anymore huh.
Final Score: Dow -121bps (about to have a death cross. Ooooo spooky), S&P500 -96bps, Nasdaq -127bps, Rus2k -94bps.
- Succinct Summation of the Day’s Events: Bad news is bad news. China devalues and spooks the world. Google changed their name to a type of soup.
- Dr Ed says China is a hot mess: “The underlying mess in China may be best reflected in the country’s rapidly rising capital outflows. Over the 12 months through July, the trade surplus totaled $541 billion, a tad below June’s record high. Over the same period, China’s nongold international reserves fell by a record $318 billion. This implies record capital outflows totaling $859 billion over the past 12 months through July.”
- “Stealth Correction” is the new hotness: “The point is that people don’t just suddenly turn bearish or even neutral when the bull market is romping. They stay bullish and the market keeps going up until we’ve converted all who can be to the bullish camp. Whether we get a correction – a real one that meets all definitions – depends on where those neutral voters go. If they turn outright bearish, we’ll probably get that correction. If they go the other way, then we won’t. Right now, momentum seems to be building for the former.”
- Toledo is absolutely ROCKING! OH vs the world.
- Do Consumers save money when oil falls? Who cares, look at the performance of Consumer stocks though!
- I could swim there
- Honestly…would you go with that over the fireplace?
- Give this guy whatever Pulitzer exists for daytime talk shows.
- The 8 Biggest disasters in US Military history. I’m a sucker for this kind of stuff
Tonight we’ll look at the world record free solo for Slacklining. You know slackline really is the perfect term for this sport right?
Have a good night.