- Flickr/Carbon Visuals
Stocks climbed, but lost some of their gains into the close, and oil spiked on Wednesday as the rally off of February’s lows continues.
First, the scoreboard:
Dow: 18,096.3, +42.7, (+0.2%) S&P 500: 2,102.4, +1.6, (+0.1%) Nasdaq: 4,948.1, +7.8, (+0.2%) WTI crude oil: $43.80, (+3.1%)
Harriet Tubman, one of the most important women in US history and an integral part of the Underground Railroad, which helped slaves from the American South escape to freedom, will be put on the $20.
Currently, Andrew Jackson, the eighth president of the US, is on the bill and is likely to remain on the back of the note.
Additionally, Alexander Hamilton will remain on the $10 bill with women’s-rights leaders joining him on the back of the bill with new $5 notes also featuring “a variety of civil-rights leaders.”
These changes aren’t expected until 2020.
Former Fed Chair Ben Bernanke – who had advocated for getting Jackson off the $20 last summer – cheered the decision not only to add Tubman to the $20 but to keep Hamilton, the most economically influential of the Founding Fathers, on the $10.
And given the scope of this debate over a change to a few US bills, Bernanke thinks we should change it up more often. Maybe then it wouldn’t such a big deal.
Everyone hates this market.
Writing over at The Reformed Broker on Wednesday, Josh Brown captured the current mood in markets, which is one of disbelief, anger, discontentment, conspiracy, and laughter.
(That is: you’re laughing if you continued to put a small amount of your pay into a retirement account that invests in low-cost, broad index funds while the commentariat was talking about the 100% certainty of the US tipping into recession within a year and 1987-style crashes.)
Anger at new highs or because of a correction or bear market is symptomatic of process-free investing. I know this from experience, and I’m thankful for this experience even though it felt terrible at the time. It taught me what not to do.
Rules-based investing isn’t a silver bullet, nor will it ever remove the discomfort that every market participant is forced to feel from time to time. But having a rhyme and reason, laid out in advance, for the decisions you will and will not make, is utterly priceless in comparison to the alternative. An alternative you couldn’t pay me to regress back to.
A note this morning from Brean Capital’s Peter Tchir also captured this idea – that something is weird in markets and no one knows what and it’s driving us all crazy – with Tchir writing about fake ETFs that could be coming to market.
I particularly enjoyed the fictional ‘DICE’ ETF which, “is designed to finally allow investors disgruntled about the stock market. Each morning at approximately 9:20, Bob Barker of Price is Right Fame, will roll a specially made die. Each of buy, sell and hold will have two sides of the die and the portfolio will be adjusted on the open based on the dice roll.”
Tchir added: “‘I’m not sure what it means and maybe after 5 weeks of grinding higher on little volume with minimal volatility I’m just angry – especially as that now seems to be the forecast going forward. But I cannot shake my fixation that some complex funds are impacting markets in ways we haven’t thought about – and that tends not to end well.”
What we do know is that “the most hated bull market ever” meme is still alive and well.
Here’s the thing with adjusted earnings: they are both true and not true.
This is, not coincidentally, true (like, definitely true) of most things in finance and economics.
Economic data? Estimated, then revised over time, sometimes dramatically.
Market forecasts? Guesses.
Earnings estimates? It’s in the name.
Actual earnings? Best effort inside the rules outlined by the SEC but sometimes revised upon discovery of new information and definitely digested in different ways by markets and investors.
And so on.
But so what we know for sure is that there is a spread between GAAP and non-GAAP (or adjusted) earnings and it grew in 2015. GAAP earnings were about 30% lower than adjusted earnings in 2015, but as Adam Parker at Morgan Stanley wrote in a note to clients, much of this spread was due to just a handful of companies and one sector: energy.
As for what the widening of the spread between GAAP and non-GAAP earnings means for stock prices? Not much, according to Morgan Stanley’s Adam Parker.
In a note Wednesday, Parker wrote:
The most recent round of press coverage on this topic occurred near the market lows in mid-February. In each case, the largest driver of the aggregate gap has been one-time asset impairments – reflecting economics that have already occurred. Unquestionably, the pro forma earnings gap has not proved to be a good market timing tool during these periods.
So by the time us eggheads noticed the worst was over, I guess. Anyway, here’s the chart.
- Morgan Stanley
This is a light week for economic data but the housing market is in focus and after Tuesday’s disappointing housing starts number, Wednesday’s report on existing home sales beat expectations.
Existing home sales rose 5.1% in March to an annualized rate of 5.33 million, better than the 5.28 million that was expected.
“Closings came back in force last month as a greater number of buyers – mostly in the Northeast and Midwest – overcame depressed inventory levels and steady price growth to close on a home,” NAR chief economist Lawrence Yun said in the report.
Meanwhile, in the commercial real estate market, Deutsche Bank was out Wednesday arguing that the best of the post-crisis boom is behind us.
“Are these slowing signs just a temporary setback, or the beginnings of the end of this cycle?” Deutsche Bank wrote.
“Based on our analysis in this report, we think the latter, mainly because of the apparently late stages of the current recovery. We find that most commercial construction metrics are at or near their prior cycle peaks, and funding has also begun to pull back. Overall, this makes it less likely that commercial construction can bounce back and more likely that cyclical headwinds may continue.”
Note that over the weekend we highlighted comments made last week by real estate legend Sam Zell who said we are in the ninth inning – for non-sports-oriented readers, this is the final inning of a regular baseball game – of the economic cycle.