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Daily Market Update – September 23, 2014 (Close) Yesterday was just a really awful day. It was another in a series of days that characterized last week’s 1.3% increase in the S&P 500 that on the surface seemed great but that actually along with the other major indices lagged the DJIA by quite a bit. Last week the market was good, just not as good as you would have thought. Yesterday was another day of lagging the Dow, but this time you couldn’t console yourself with the 1.3% gains, as the Dow itself was down triple digits and on a relative basis everything else was down even more. Even Alibaba was down about 5%. For those that boldly stated that the Alibaba IPO marked the beginning of the end yesterday’s trading is validation of their position. There was a graphic making the rounds yesterday that showed market levels at the time of three previous “largest” IPOs that showed that they occurred at precisely the market’s top of the then current bull markets. Unfortunately, they didn’t bother telling people that they cherry picked the data and omitted including other “largest” ever IPOs, such as for General Motors (the second time around), Facebook and others. They also conveniently overlooked IPOs on foreign markets that nonetheless traded in the U.S. as ADRs. Having included any of those other IPOs would have made their graphic appear very different and would have invalidated their contention. In fact, this is what the more reflective graphic would have looked like and that’s whithout adjusting for such factors as Visa having sold about 80% of its shares at IPO, as opposed to Facebook, which only sold 25%.
Still, whenever you’re at market highs you do have to wonder whether you’re at the peak. For those that remember the Reagan Administration, you may remember the one time director of the Office of Management and Budget. That was David Stockman, the architect of the “trickle down theory of economics.” He just wrote a s This morning things were looking better, but not looking good. Neither for the markets nor for Alibaba. The market was again poised for a lower open and Alibaba was indicating another 2% lower on a morning that comes after Treasury has announced new regulations regarding tax inversions and the United States and its coalition allies have attacked ISIS targets inside of Syria. Both of those represent the “unexpected” kind of news, even though most of us knew that each one would likely be coming sooner or later. It’s just that no one really thought that today would be that day. With surprisingly more new purchases yesterday than I would have believed to have occurred, today was a day to largely be passive and hope that the events of yesterday’s market are not a prelude to a near term sell-off. At the very least today’s nearly triple point drop in the DJIA was worse than the S&P 500 performed, as today everyone was buzzing about another signal, the death cross,” that also has no validation, yet seems to have a significant following. It’s already clear that Treasury’s decision is having an impact on some proposed inversions, as the new regulations take place immediately. However, what is not being discussed and what is very likely going to be an outgrowth of the Treasury decision is some upcoming modification to the corporate tax code, particularly regarding overseas funds and the tax rates, that would make the desire to execute an inversion less desirable in the first place. But as far as today is concerned that possibility is irrelevant and won’t be guiding anyone’s investment decisions, much less acting as a catalyst pushing the market forward. While there remains little that can be identified as a catalyst to help convincingly reach new record highs and do so in a broad fashion, I wouldn’t entirely dismiss the market’s resilience. Just as there is no easily discernable catalyst, there really is no compelling reason to believe that the rug is about to be pulled out as the market isn’t really trading at an historically high multiple, particularly when realizing how that multiple has been artificially elevated through massive stock buybacks. So pessimism may reign after yesterday and today’s performance, but the signs, other than a gut feeling and a overtly biased graph, just aren’t really there.
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