"Adapt yourself to the things among which your lot has been cast and love sincerely the fellow creatures with whom destiny has ordained that you shall live." -- Marcus Aurelius
The Band Played On
What if the Dow Jones Industrial Average hit 22,000 and nobody cared? What if there were too many other factors, some of them not quite so positive, that drew investor attention away from the rousing success of the biggest stocks with the most international exposure? We all know that these lofty heights that those of us that live and breathe the stock market find ourselves at are largely due to earnings. What if we did not have the recent performance of, oh, I don't know... let's say Boeing (BA) , Verizon (VZ) , McDonald's (MCD) and Action Alerts PLUS charity portfolio holding Apple (AAPL) to figure in. The top half of the S&P 500 (or should we just call it the S&P 250?) has returned a rough 16% year to date. The entire S&P 500 has returned 10%, suggesting that exactly what has happened to American society has also reared its ugly head in our marketplace. The Nasdaq Composite has returned 18% this year. The Dow Jones Industrials, on the year, have produced an 11% gain, in line with the broad S&P 500.
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It is what's going the other way that should scare us. That tells a story in itself. While both the ability to do business internationally and being visible enough to draw foreign investment has produced glorious results for "haves", thanks to the weaker U.S. dollar, there are "have nots" that now stick out like a sore thumb. There are no more broad statements proclaiming the general direction of the equity markets, largely because there is now significant divergence in performance. There is no broad stroke that can describe the equity markets.
It's easy to pick on the Transports, so let's go there. That's the domain of Dow Theorists. They are not crazy. The beat-down taken by that group suggests a weaker second half for the domestic economy. No gains for personal income. Sputtering retail sales. Very little capital investment. A central bank bent on tightening monetary conditions. I don't know, gang, what could they possibly see? While the DJIA has picked up nearly 2% over the last 10 trading sessions, the Dow Jones Transports have surrendered 3.3%, and the small-cap Russell 2000 more than 2%. What does this mean to the average kid trying to figure it all out? I'm not sure I'm an average kid, but I've got two fists, and I'll tell you what it means to me.
The Dow Transports sliced through their 50-day simple moving average just last week, and closed squarely on their 200-day SMA last night, despite the two averages existing a whopping 288 points apart. That means investor hopes for commerce in itself are starting to sag. Auto sales? Coal? Crude? Has the need to move resources from point A to point B peaked for the time being? Is saturation a problem? How about the small caps? The Russell 2000, though trailing the pack all year, has really started to turn the wrong way of late. That index also cracked its 50-day SMA from the upside yesterday.
More of What's Trending on TheStreet:
- Resist All the Dow 22K Hoopla: Cramer's 'Mad Money' Recap (Wednesday 8/2/17)
- Tesla Will Need to Raise Cash, and Just Revealed How It Might Get It
- Amazon the Next RadioShack?
- Tim Cook on Trump's Claim that Apple Is Building 3 U.S. Factories: 'There's More We Can Do'
Could this mean that investors are losing hope in seeing any eventual tax reform? Unlike those larger corporations, the small-caps do not benefit from the weak U.S. dollar. These firms are for the most part domestic in nature. They also, as a group, pay very close to the headline 35% corporate tax rate that the larger firms find ways to effectively reduce. Infrastructure spending, another initiative for the current administration in Washington, would also be helpful for this group. So close, yet so far. What a shame.
Don't Get Picked Off
Now, tech stocks will also come under the watchful eye of scared money. I am not about to bail on that group. That sector, at least at the top, still has plenty of international exposure. You don't have to run, but this is where the profits are going to be for traders who might need to raise cash to address problems elsewhere in their portfolios. This is also a group where at least the slice of any tax reform package known as "repatriation of cash at a reduced rate" may have been partially priced in. If there's no tax reform deal, then that money is staying put. Technology, I think is still the place to be if you're running a fly pattern, but that does not mean that there won't be opportunity to get in, or stressful periods that will try to shake you out. Depends how you look at any pullback. It's the "harmless" pass in the flat that turns into a pick six when you allow discipline to lax.
OK, so maybe I am biased here. If you know anything about me, you know that I made my career at the point of sale, the centralized last meter of price discovery. The spot where the ongoing, two-sided auction market resulted in transaction. The open-outcry marketplace. Yes, I have strong feelings here. Yes, I believe that there has never been as fair a market as one that resulted from face-to-face trading, where every order had to be verbally presented, and a trader's word was his or her bond.
Didn't think that market was very fair? Do you prefer a fractured marketplace, where electronic orders do things in microseconds? Maybe you were using the wrong trader.
Yesterday, Box Options Exchange received approval from the SEC (Securities and Exchange Commission) to proceed with the creation of an open-outcry trading floor in Chicago. Box has stated that they should be ready to open this floor later in August. Why? Why, you ask, in this day and age do we need floor traders? The answer comes loud and clear from backers of this grand idea. Because options orders can be complicated. They sometimes have a lot of hair on them, and require a human touch, rather than that of a computer.
To be sure, Box has only captured a rough 2% market share of the volume in options contracts across the 15 or so venues that trade them, but this is a step in the right direction. Like I said, I have a bias here.