We almost got the Jackie Moon moment – i.e., a panic sell-off – which we warned about in our early morning post if trade tariffs were announced today. We believe a five percent one day downdraft would constitute a Jackie Moon move.
Uncanny Similarities With 1962
In our JFK-Trump S&P500 Analog post we mentioned how steel was a big part of the 1962 bear market, when the president referred to steel executives, who broke an agreement with the labor unions and the administration to hold down inflation, as sons of bitches. JFK’s rant helped accelerate what was a modest correction over inflation worries into a full blown bear market. The S&P500 was down 5.8 percent off its peak when President Kennedy held his press conference on April 11, 1962 accusing the execs of having “utter contempt” for the United States. Imagine if Jack had access to Twitter back then!
Today, steel was also at the center of the sell-off in what looks to be the next leg down in what we suspect will also end in a bear market. The S&P500 was off a similar 5.5 percent from ts peak when President Trump announced his steel tariffs today. Hmmmm,..
The Steel Curtain bear markets?
The table also illustrates very similar trough to peak bounces in the first leg of the bear market, 76.42 percent, in 1962, versus today’s 75.39 percent, which occurred just this past Tuesday. Close enough for government work, in our opinion.
Moreover, check out this headline today:
No comparison of today’s danger to the 1962 headline but, hey, we thought the cold war was way over?
Back to the future, folks. Let’s hope not.
Watch These Levels
The S&P500 breached its 100-day moving average at 2,665.14 and the key Fibonacci retracement level of 38.2 percent at 2,662.64 today but managed to close above both. We doubt they hold and a retest of of 2,532.69 low is in cards in the next week or two.
We don’t think that holds either.
Unless President Trump walks back the tariffs and his tough trade rhetoric, consider today a game changer, and not for the better.
Beware Of Share Buyback Alchemy
Just finished looking through a market cheerleader data set on earnings and revenue projections. Always quoting earnings on an EPS basis, which is distorted by buyback alchemy, and non-GAAP accounting. An example of Truth Decay in the financial sector.
The later stages of the 2009-2017 bull market are a valuation illusion built on share buyback alchemy. Absent this accounting trick the S&P500 index would already be in an earnings recession. Share buybacks have accounted for +40% of the total earnings-per-share growth since 2009, and an astounding +72% of the earnings growth since 2012, compared to +24%. Since 2009, an estimated +30% of the stock market gains are attributable to share buybacks. Without share buybacks the S&P500 index would currently trade at an expensive 27x earnings. Not surprisingly, a recent study found a positive relationship between insider equity sales and share repurchases, supporting the idea that buybacks are more about managerial self-interest than share holder value — Artemis Capital, October 2017
Stocks are not cheap, folks. Be patient. We may be wrong but believe you will get them much cheaper. The time to buy will be when the cheerleaders are panicking.
Nevertheless, don’t bet your career on our views and have a plan to act contingent on if stocks tank or rally from here.
S&P500 Approaching the Navarro Falls