Every time I did into the SP 500 earnings data, I tend to come away thinking that the equity bull market has a ways to run, as I did today with the weekly SP 500 earnings update.
The fact is, with Twitter being tailor-made for the investment and trading business, as someone with my own book of business, and beholden to no one but my clients, Twitter allows me to be “on” in terms of reading quality research from breakfast at 6:30 am every morning to 10 pm in the evening.
Here are the article which caught my eye this week (and I keep a list starting every Monday morning, through Saturday or Sunday when the “Linkfest” is written):
Josh Brown on The Chinese Fire Drill – have to wonder if China is a bigger deal than Crimea given how copper and coal acted this week;
Norm Conley of JAG Capital with another one of his great tables showing 13-year SP 500 earnings vs revenue growth, and what Norm calls the SP 500 Super Rallies without a 10% pullback. (If you aren’t following Norm in Twitter at @JAG_Norm, you should be.)
Finally Norm on the relative strength of the Materials sector. We are still long Alcoa (AA), US Steel (X) and Freeport (FCX), and may get longer in the group.
Speaking of Basic Mat and Energy, Forbes wrote about coal this weekend. We are thinking the same. Coal had a rough week: BTU was down 7.25%, ACI was down 6.5%.
Jeff Miller’s logic of thought and his debunking of mainstream of media shows how retail investors can regularly be mislead. Here was last week’s article. The one thing that impresses me about the financial media is that they are typically at extremes. Not all, but to get attention, you have to scare people. People typically remember more when they are afraid than when they are happy. Here is this week’s article from Jeff Miller on Yellen’s big week.
Ukarlewitz on Rydex players buying the dip and the SP 500 performance 2 months later. Not a good sign. Are we headed for our first 10% correction ?
Greg Ip via Bob Brinker on accelerating wage growth: despite the rally in the 10-year Treasury this week, the auctions went poorly, and I took note of the action in Moody’s (MCO) stock this week. Moody’s didn’t blink in 2013 when it traded from under $50 in early Feb ’13 to over $70 by year-end, despite the move in the 10-year Treasury from 1.61% to 3.04% by 12/31/13. Down 2.5% last week, maybe it is just an ordinary correction. Love the company. Great stock too. MCO should be an interest-rate tell. The point being that if there is wage-growth, i.e. demand pull inflation, that is something the Fed will be sensitive too. Remember “The Conundrum” from ’05 to ’07: the Fed was worried about growth and inflation but the Treasury market never did.
Schaeffer’s Investment Research (SIR) and Todd Salamone’s weekend piece, sums up perfectly the prevailing thoughts on the equity market in my opinion. The vote tonight on Crimea, the China data, seems very plausible as reasons to worry about the market, but there is underlying technical support. It is expiration week, so what happens on Monday could be key.
Here is Ryan Detrick’s analysis of expiration week action from his perch at Schaeffer’s Investment Research. Another quality guy from SIR. Frequent CNBC and Bloomie guest. His opinion is valued across a wide range of mediums, and most importantly he is usually right.
Ryan Detrick on the extended Russell 2000. Here is an article we wrote this weekend on Seeking Alpha, on what we’ve sold in 2014 year-to-date. How this week turns out, could tell me a lot about the next few months.
Per Soberlook, the credit markets, specifically the high-yield bond market is flashing full-steam ahead for the equity market.
The muni market saw a lot of issuance this past week, with Puerto Rico and Chicago issuing debt. If you are living in denial, move to Chicago, you’ll have good company with the Chicago’s Comptroller Lois Scott, who says “The City’s credit is strong, and getting stronger”. Umm, yeah ok, expect that both Moody’s and S&P have trashed the GO credit rating in the last 6 months. Per the Illinois Policy Institute, the unfunded PBO on the public union debt “averages” $84,000 for every Chicago household.
To conclude, I try not to have the Linkfest turn out to be a scattered assortment of articles and not without a common theme, but nobody does that better than Jeff Miller, so what I try and do with the Linkfest is to pick out the most insightful articles we’ve read all week, and see then if they result in a common thread. After all the reading this week and this weekend, what I get is “the market action hasn’t been great thanks to Crimea, Putin, and China econ data, and with expiration week this week, it could get worse”. However I look at the SP 500 earnings data and wish for another 5% pullback so I can buy more of our names at lower prices.
We have more cash now at 5% – 10% of client accounts than I’ve had in some time, and very little duration exposure, which I am regretting if the equity market is soft, and Treasuries rally more. Our worst trade to date this year is the TBF, and the 10-year Treasury rally which has worked against our Inverse Treasury TBF trade, which we could add to this week just to lower the cost basis.
I think we are at a critical and difficult point in the equity market’s juncture right now. Surprisingly, according to Ryan Detrick, Investor’s Intelligence data stayed bullish this week with a 55% reading – not good in my opinion, if you want higher prices.
I think the 2nd half of 2014, could be stronger than 1h ’14, but that is an educated guess. We need to get through the brutal Midwest winter, Crimea, China, and then the rhetoric and name-calling with start to heat up, for the November ’14 mid-term elections. The 2-year Presidential Cycle analog might bear fruit from now through the summer swoon.
I hate “gut feeling” analysis but it feels like there is more flush ahead for stock prices, particularly this week. Sentiment is bullish, leadership groups look weak, we haven’t had a 10% correction in the SP 500 in a LONG time.
Thanks for reading. More to come this weekend.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager