Smack-Down Recon (Special Edition)

From the Dark

               Ever feel like you are being followed? Ever know it? You probably knew it was out there this week. Always is. Always watching. Quietly. Waiting for the right day. Then … Unleashed. The “Ugly Stick” is out, and it’s angry. Blood in the streets, or should I say “Blood on the Street”.
               Yes, the catalyst is obviously the abundant political risk. One story heaped upon another. Which straw will be the one that breaks the camel’s back? There are some that truly wish to find out. They certainly must not be long the equity market. There has been a certain level of faith out there, that things will get better, and that faith has been evident in our monthly consumer surveys, home-builder surveys, and regional manufacturing surveys. The soft data got this market to the point where earnings could take over, and helped sustain equities even through some rather rough macro. Auto Sales, Retail Sales, Consumer level inflation, even housing starts have all under-performed expectations.Bottom line… You put the whammy on sentiment, and pal, you have a problem.
               Down go the broader equity indices. Okay. Buying opportunity? Sure, I did buy small today, in some names that I felt the risk was indeed minimal. By no means did I try to do any more than get on base though. There will be no swinging for the fences this afternoon. Let’s pick this apart, and try to make some sense of the mayhem.
                 Actually it’s not just us, Europe took one in the teeth today as well. Proceed with the ugliness.
Financials. Whoo Doggie. Where ugly begins. I was starting to doubt my wisdom in dumping JPM. Now, I’m wondering why I held onto C and KEY. So, why this particular slice of pain so acute? Just take a look at the ten year, or any series of US Treasury debt products. Yields are collapsing. Probabilities of a June rate hike are collapsing. Every time that I think about cutting my portfolio bond allocation (currently 15%), I end up being glad that I did not act. Anyone else using a post-it to cover their P/L on their computer screen?
Small Caps. The little guys are US-centric, and for the most part, pay higher effective tax rates than the big boys. That is to their detriment of late, and especially today. A US dollar that is weakening against it’s peers,and the loss of faith in the ability of the Trump administration to push it’s agenda are no friends to the Russell 2000. Carry on.
Transports. Know what economic growth brings? Goods move. Resources move. People travel both for purposes of business, and pleasure. Commerce happens. When commerce happens, truckers truck, railroads hum, and shippers ship. Again, the loss of faith in the agenda is evident in this space. Dow theorists will note that this trend of under-performance by the transports has been in place well before today’s massacre.
Technology. Simply where there were fat profits to be taken, or protected. A place to raise cash. Add to that the now all but forgotten repatriation story, and obviously a re-pricing of these assets became a market story.
Industrials, Materials, Discretionaries. Down, down, down. Ditto. Ditto. Ditto.
             What looks good today? Gold, that’s what. Gold (7.5% allocation) is rocking it’s safe-haven status today. as for the rest of the commodity complex, Crude, Corn, and Wheat amongst others are just glad that the dollar is getting smoked. That safe haven status is also being extended to the already mentioned Treasury market, and to the bond proxies as well. It’s a beautiful day for the Real Estate, and Utility sectors. defensive minded Staples are also holding their own .. just barely.
              This is not the end of the world, but this may be the spot where traders are separated from those who can not. Being long names that increased in value while you owned them was the easiest thing in the world since early November. Back to normal, gang… but perhaps not yet. Now that political risk is expected, this becomes headline risk, and this will matter every day. I hope you enjoyed low volatility, and a microscopic VIX. I am no fortune teller, bit those days. for now… appear to have passed into history. Keep in mind, if you are having a rough day, that somebody else is dying of cancer, or dying of hunger, or simply dying of loneliness. If today’s market action is the worst that you have to deal, then count your blessings, for they outnumber your woes.
Sarge Out.