Are We At A Market Top?

April 2, 2018

5 minute read

by Michael Antonelli, Managing Director, RW Baird & Company

March 26, 2018

Equities start the day higher as I dust off my trusty Word document to update you on the world travels of BullandBaird! No joke I’m pretty sure I set some kind of internal Baird record for most continents visited in the past month but I did it all FOR YOU! Why did I fly over every major ocean on the planet? Well I wanted to ask the following question to institutions, high net worth, and corporate leaders: “Are we at a market top?”

I endured awful terminals, massive jet lag, and not seeing my family for 30 days all to have something fresh to write about. Man I love this job. Anyway, the answers were many and varied but in the end the best way to sum up my findings is this: no, but its closer than it’s ever been. Look…economic data and earnings are still quite good. New Home Sales continue to rise, Auto Sales are still strong, unemployment hasn’t risen, and Consumer Confidence remains steadfast.

Q1 earnings should have a massive tailwind from Tax Reform and a weaker dollar and if you don’t think companies will be raising guidance you’re nuts. That being said, we all know the economy is late stage, you can get a freaking bottle of Dom Perignon delivered to your home in under an hour and that kind of stuff only happens when people have made far too much money in the stock market. Volatlilty has started to increase on a daily basis (tend to see when a market begins a topping process), the Fed is hiking up Mt Everest, and we have a President throwing trade wars against a wall to see what sticks.

So while the top may not be today, or tomorrow, I think a reasonable conclusion is that we’re in the 8th inning (if you’re in London we’re in the 80th minute of footie, if you’re in Australia we’re in the 70th minute of rugby). The score is 18-4 Bulls over Bears but the Bears are lining up their best guys. Should that change the way you do things? Of course not, no one on the planet knows when the ride will end, but your expectations about how much longer we have to go should probably be adjusted.

After the open we made a feeble attempt to build on yesterday’s momentum but it all fell apart as tech stocks shipwrecked themselves on an island of hubris. TSLA down 8%, NVDA down 7%, NFLX down 6%, GOOGLE down 4.5%, FB down 5%. Investors are looking at these stocks differently now, the notion that they were “bulletproof buys” is crumbling by the minute. For the longest time mega cap tech names were THE place to hide out to avoid political nonsense and Fed worries and scary headlines.

Ebola got you down? Buy AAPL. US Govt threatening a shutdown? AMZN feels right. Growth is slow? Not at FB. Now that they’ve shown a soft underbelly you can feel momentum leaking away. Will anyone step up to replace them as market leaders or will this pass like every other concern? We’ll see but I do know this, $SPX can’t rally without them. Combo that price action with a couple misses in economic data (Richmond Fed and Cons Confidence both whiffed slightly) and you have yourself a recipe for intraday decline.

Oh did I mention $SPX rallied 2.7% yesterday? Yea it’s hard to keep that torrid pace up day to day. GE actually rose today, can you believe it? That’s right people General Electric was the big winner after it issued fresh guidance and a roadmap to the future alongside atoning for its past sins. Actually who am I kidding, there was chatter that Buffett might buy a stake in it.

I mean when all else goes wrong and your stock is being shellacked every 24 hours just rely on the trusty old Buffett rumour for a day’s reprieve. By lunch we sat on 2,654 down 0.15% but the Nasdaq was screaming lower down 1.1%. Can somebody tell me how Qantas can serve every coach class passenger free food and drinks yet if I step on a United plane I have to pay $8 for a bread roll and a piece of cantaloupe? I’m angry.

The final hour was abject misery as the indices all plummeted to fresh lows. Momentum / Growth basically re-imploded after a brief respite on Monday and if you think we’re “out of the woods” you’ve been listening to Taylor Swift too long (it is a good song). We closed in the gutter and here are the last 4 days of S&P performance: -2.4%, -2.1%, +2.7%, -1.7%.

This is a market that is completely lost, the last time we saw price action like this the European crisis was raging (2011). Honestly when things get this intense all you can do is batten down the hatches and ride out the storm. If the tech story really is ending then this selloff is far from over. But you know what, that environment makes for good recaps! Final Score: Dow -1.4%, S&P500 -1.7%, Nasdaq -2.9%, Rus2k -1.9%

Volume was high. News Highlights:

Succinct Summation of the Day’s Events: The market is sickly, all the big tech growth stocks are being hit over the head like Wile E Coyote.
I bet over half of 401k participants choose their allocations just like this. There’s never been a better time to be a financial advisor.
Like I say in my speeches, Behavior matters more than anything. “Good investing is just like successful dieting. You don’t need to discover some holy grail of dieting. You just need a plan that will instill discipline in you so that you stick with it. That’s the only diet that works and it’s the only investment strategy that works”
Things Fund Managers don’t say enough. Must read for the PMs on the recap. I liked this one the best: “I am fully aware of our propensity to make behavioural mistakes, and this is how I aim to minimise them…”
Just so you’re clear, this is how some people view your FB feed: “Affiliates describe watching their ad campaigns lose money for a few days as Facebook gathers data through trial and error, then seeing the sales take off exponentially. “They go out and find the morons for me,” I was told by an affiliate who sells deceptively priced skin-care creams with fake endorsements from Chelsea Clinton”
Little slice of Alpine heaven
I can’t even ski down a blue without being nervous