Confusion Reigns
Equities start the day higher as confusion reigns. Actually maybe it’s just reigning in my brain because I’ll admit to being oddly confused. Let’s look at the big picture shall we? The Fed told us “we really want to hike rates this year but it might be a one and done situation”. Ok, that’s good, seems bullish to me. Transports continue to break down like Tiger Woods golf game so that’s definitely bearish. Sentiment is putrid (AAII bullish sentiment has now been below 40% for 17 consecutive weeks ) so that’s definitely bullish. Valuations are still expensive but I won’t outright say that’s bearish given how hard it is to call the top. Still, that’s not exactly good so we’ll lean negative there. The Rus2k and Nasdaq composite are threatening to break out to new all-time highs so yea, those go into the bullish camp. Volume is abysmally low (on a per share basis) but I don’t think that’s bullish or bearish it just is what it is. Donald Trump might be the most entertaining politician we have so I’ll put that one into the “I hope an asteroid hits the Earth” soon camp. I don’t know my friends, are you as confused as I am? I get that all these conflicting themes is the main reason we have no trend but have you ever seen a more forgiving market than this? Both sides, bulls and bears, have been rewarded for being patient. On May 21, if you were a bear, and staring at new all-time highs in $SPX, all you had to do was wait 2 days for a huge selloff. On June 8, if you were a bull, and had just lived thru 3 ugly sessions in a row, all you had to do was wait 2 days for a huge rally. Should we be celebrating this market? One that forgives poor entry points in rapid fashion? Maybe, I’ll admit I haven’t seen anything like this in a long time. New highs today? Wouldn’t surprise me, let’s find out.
After the open we did indeed get new highs! Boom shaka laka. Where you say? Well not in the S&P that’s for sure but the Russell 2000 and the Nasdaq both printed new all-time highs. Not only that Biotechs printed another new high. I love how Biotechs pull back a bit and everyone screams “yep, that’s the top” and a month or so later they laugh in the rear view mirror. Why the morning rally? I think a lot of people are off-sides, I really do. All these sentiment indicators scream “I don’t like the market so I’m just watching for now” and when that type of view pervades a market it’s ripe to go higher. Did Greece get fixed? Nope, we got one rumour saying there was going to be some kind of debt relief but it was summarily dismissed when the Eurogroup said “we got nothing here people”. Economic data was actually decent: CPI was tame and Philly Fed beat so we had that going for us. By lunch the two aforementioned indices were squarely on their highs and the S&P was doing it best to catch up, 2,119, up 0.9%. Did it feel ragingly bullish on the desk? Not at all, and I like that fact. No one talked about new highs and that suits me just fine.
The final hour saw more Greek headlines including this one from Dijsselbloem “Greece moving in direction of Euro exit”. I know this is nothing but posturing and putting the onus on the Greeks to come back to the table but I hope they actually are close to an exit. I just want an end to this story and so does everyone else. Stay or go, pay or don’t pay, just end it, please. The sun will rise in Athens and Berlin and London and New York. The stock market will survive as will the bond market. The Greeks need to find a way back to prosperity so whatever path they take I hope they find it soon. We closed at 2,121, just 9 points shy of the record. So what should we expect tomorrow or Monday? Why a selloff of course. If the pattern of 2015 holds we will see lower prices within a day or two. Man I hope I’m wrong about that but we’ve been here before remember? (the end of May)
Final Score: Dow +100bps, S&P500 +99bps, Nasdaq +134bps, Rus2k +129bps.
News Highlights:
- Succinct Summation of the Day’s Events: I’m labelling today the “off sides rally”. Too many bears / neutrals / unbelievers. Who knows though, every time we hit this level we pull back so it might be for naught.
- Should we ignore the “Buffett Indicator”? The mkt cap to GDP thing? This author thinks we should: “Profits margins are far higher now (and staying there) than they were 20,30 or 50 years ago. That means that a greater % of US GDP is falling to the bottom line of corporations than it has in the past. Since the market is based on earnings, that very fact alone means the market should be diverging from the GDP line. When GDP is growing ~3% annually and corp profits are growing 7%-10%, the two lines must diverge.”
- Barry is spot on about how healthy our housing market is: “Thus, we can see that the state of the U.S. housing recovery is similar to that of the economy overall: It is slowly improving, but faces headwinds. It remains highly regional, unevenly distributed, with the top end doing better than the rest.”
- Factset poses and interesting question (good link for PMs here): The question remains, did the strength of the U.S. dollar in 2014 boost companies domiciled in the United States and that do the majority of their business domestically to outperform those domestic companies who did more business internationally? Simply put, yes. As the strength of the dollar jumped 13% in the second half of 2014, the performance gap widens for the domestic companies that did the majority of their business in the United States versus those that did not. When valuing companies in a global economy, it has become imperative that we pay close attention to global currency shifts and macroeconomic events—even when doing single country market analysis
- You know what, I think I’ll just hold it
- If you were ever curious about stock buybacks and whether they are good investment signals hit up this link immediately. “Buying companies with the highest buyback/shareholder yields has been a great investing strategy.”
- The Battle of Waterloo happened today! BI had an awesome slideshow breaking it all down. I loved every word of it.
- Speaking of the French, man they have some cool towns.
- Speaking of cool towns, look at some of these places to visit.
- Guess what, if you are ever in doubt, ever, just trust the bond market. I’m serious.
We’ll end tonight with a look at what happens if you try and get your golf ball back from a crocodile. Or is it an alligator. Who knows, but what is this guy doing…seriously.
https://www.youtube.com/watch?v=AnD70z1be3w&app=desktop
Have a good night.