It was one of those sessions that wanted to be great but ran out of gas. However, investors continue to rotate out of defensive sectors into cyclical ones.

Market Breadth

Market breadth was mainly even, although the S&P 500 Midcaps saw fractionally more advancers than decliners.

Semiconductors rebounded, but the carnage in Health Care (XLV) became more intense (call a medic).

Economic data continues to come in better than expected, and I’m sure Jay Powell can hear the ghost of Arthur Burns in the halls of the Federal Reserve. The 50-bps cut was right, but the Fed Chairman is under as much scrutiny as a presidential candidate.

The street still sees a 25-bps cut next month, but the odds have come down a lot. The great news is that the Teflon market acts great with or without rate cuts.

Wisdom of Crowds

Maybe the tables have turned, or perhaps the so-called “dumb” retail trader has become folklore that refuses to die.

Yesterday, the head of Goldman’s trading desk said the S&P 500 could reach 6,270 by the end of the year, in part because institutional investors will be forced to buy stocks.

I love the irony. Our game plan has always been to position ourselves ahead of deep-pocketed Wall Street, which still moves very slowly in the age of instant analysis and lightning-fast decision-making by machines.

Maybe all that institutional buying is a sell signal?

Retail investors pulled back on bullishness even as the market is knocking down new highs daily.  We had an old saying back at Strategic Air Command.

Lead

Follow

Or get the Hell out of the way          

Retail is still bullish, but not giddy, and certainly not irrational.

Today’s Session

In recent years, we have become what I call a ‘Headline Driven Society,’ which is only slightly better than a ‘Gossip Driven Society.’ It is certainly miles away from the society that used to read the paper cover to cover.

The information superhighway undoubtedly gives everyone access to unlimited knowledge, including facts. Still, the rampant headlines have probably left the masses misinformed and curious citizens who dive into details falsely labeled crackpots, conspiracy theorists, or other antisocial tags.

I think this plays a significant role in our political divide.

Many false stories live on and, for some, become conventional wisdom.

The same applies to the stock market, where narrative and expectations supersede reality when describing individual stock movement and the broad market.

You have heard conversations and debates over “good news being good news” or “bad news being good news.”  What’s lost there is the assumption of what is good news. 

That’s where manipulation and being a headline-driven society come into play.  Yesterday, jobless claims came in better-than-expected (the magic phrase in the stock market’s version of headline-driven society like “Open Sesame” in Alibaba and the 40 Thieves). However, when you remove the noise of states that have endured recent hurricanes, initial jobless claims surged 18% from a year ago.

Moreover, continuing jobless claims, which reflect the difficulty of finding work after losing a job, continue to trend higher.  Layoffs are a much smaller component of the labor crisis than when businesses stop hiring.

Gaming the broad market through manipulating narrative and controlling expectations is more difficult for individual stocks.

This morning, American Express (AXP) posted financial results that “beat” on earnings big time but missed on revenue. Management had nothing but glowing comments on the strength of the consumer and raised full-year earnings guidance by $0.45.

The stock opened much lower.

Why? 

Revenues did come up short, and despite all the talk of strong consumers, the company raised its credit loss provisions. The other issue is the stock has already made a huge move higher.  So, one could argue it was priced for perfection.  When I own big winners priced for perfection, more often than not, I’ll hold going into earnings. If the narrative changes, I can still take hefty profits. However, investors must be clear-eyed when the broad stock market is priced for perfection after climbing as much on narrative and expectations as fundamentals.

It doesn’t mean hop off because guessing tops and bottoms is a colossal mistake. But when headlines can’t be manipulated, and bad news is bad news, it's time to spy on the exits.

Comments

Hey, Charles Two thoughts 1 I never have liked the dumb money vs smart money because the dumb money isn't so dumb and the smart money isn't that smart. I prefer weak hands vs strong hands. 2 I'm usually receptive to the top line miss with a bottom line beat because, to me, that means management is working smarter. Ric Walter Ric Walter on 10/18/2024 10:11:05 AM

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