Morning Note: Disjointed!

Treasuries are in rally mode this morning, as is the implied volatility priced into S&P 500 options (the VIX), while energy, financial, material and industrial stocks, and most commodities (although food is up) are taking hits. 

Given what I captured in paragraph one, the major equity averages have to be off something ugly to start the day, right? 

Well, unless you consider a mere 76-point drop in the Dow ugly, nope!

As I type, the S&P 500 is up 0.44%, the Nasdaq’s up 1.20% and the Russell 2000’s up .20%. 

And, yes, once again, the index’s headline numbers (save for the Dow) paint a bullish picture, while the underlying numbers tell a somewhat different story: 263 of the S&P’s 504 members are in the red, while the Nasdaq is split down the middle.

Such is the action of a severely disjointed market! 

There’s another term that this sort of action tends to characterize, it starts with a B!

The Wall Street Journal’s James McIntosh this morning admits that he’s been resisting the comparison between the dotcom bubble and the current setup, but it looks like he’s finally checked his last box. 

Here’s the list of factors that has him now calling bubble:

  • IPO Froth
  • “New investors who don’t know what they’re doing”
  • Story Stocks Boom
  • Early investors are selling their shares
  • The belief that the Fed has the market’s back
He does, however, sympathize with Wall Street’s latest mantra — that record low interest rates justify record high stock prices:

“Treasury yields are super low, and the Fed has promised not to raise interest rates. That justifies higher prices for stocks with reliable long-term cash flows, including Big Tech stocks such as Apple AAPL +2.58% or Facebook. Compared to a 10-year bond, U.S. stocks don’t look expensive.”

Yep, I get it. But, I also get that record low interest rates say something, something serious, about macro conditions and the prospects for corporate earnings (the [along with future dividend prospects] ultimate determinant of stock prices).

Well, now I have to redo those numbers I began with. 

In the time it took me to type the above, the Dow has taken a further dip lower, now down 325 points (1.16%), the Nasdaq has rolled over, now down 0.78%, the S&P 500 is now down 0.87% and the Russell has gone the other direction, now up 0.87%…. Yeah, disjointed! And “something ugly.”

Dragged by energy, banks, materials, Eurozone stocks and industrials — yet buoyed a bit by utilities, Verizon, consumer staples, ag commodities, and the yen — our core portfolio is down 0.52% to start the day.

I’ll get out of here now, or I could be here all day changing numbers…

Have a nice one!
Marty

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