Sometimes I like to take a “bottom up” view of what’s happening in the markets.
That means I look at a few stock stories and see if there’s a larger trend and if that trend is reflected on a larger scale.
I didn’t mean to do this in recent days, but with earnings season in full swing — and the election — a couple things caught my eye that all seem to point to trouble, where the market and the economy seem to be ignoring this reality.
First, let’s start with some recent earnings from what I would call stocks that are bellwethers in their sectors.
Caterpillar (NYSE: CAT) came in with yet another bad quarter and has guided lower for the year. CAT is a great indicator of global economic growth because its equipment is used to build and repair infrastructure.
So far this year, CAT has been doing well but it is simply off significant multi-year lows. The stock is off 13 percent in the past five years, which shows the lack of economic growth both here and abroad.
Another bellwether is Under Armour (NYSE: UA). This was a consumer discretionary darling, offering sports apparel and equipment. The stock has been growing like a tech start-up for a few years now — and was valued like one as well.
Its chief competitor is Nike (NYSE: NKE) and Adidas, but both are significantly bigger than UA. However, the two U.S.-based firms are both struggling. NKE is down 20 percent in the past year and UA is off a staggering 66 percent.
This sends a message that not only is the U.S. market not spending up for premium apparel and equipment, neither is the rest of the world. Adidas is up 80 percent in the past year but it is coming after major soccer tournaments and the professional leagues’ seasons around the world. It’s also making moves to grab some of its competitors’ market share in the U.S. and looking to sell its weakening golf businesses.
As for the energy sector, forget about a fast recovery or $100 a barrel oil anytime soon. Oil services giant Schlumberger (NYSE: SLB) reported its Q3 earnings were off 82 percent.
The Street has rationalized the drop as a blip in an otherwise strong year for SLB. Fundamentally it means that the oil patch is still trying to gets to its feet because the global economy is stuck in neutral.
Apple (NASDAQ: AAPL), the darling of the tech world, came in with revenue down 9 percent compared to the same quarter last year. And this is after the release of the iPhone 7.
Most analysts are always whistling past the graveyard regarding Apple because the stock is so widely held by financial institutions. But the fact is Apple has not been able to string a set of strong quarters together in quite a long time. The bloom is off this rose.
But it also represents a shift in consumer spending. Apple products are priced at a premium and as the mobile market matures, people are voting with their wallets, buying lower priced devices that have similar features to Apple.
That’s infrastructure, consumer discretionary, energy and tech that are looking at its top companies end the year worse off than they began. Healthcare is another industry in retreat as well.
Add to this the uncertainty of what the election will bring and macro indicators like U.S. corporate spending on equipment falling to multi-month lows, and you’re looking at a very serious correction that will either happen in slow motion or very rapidly. I’m guessing the latter.
Why? Because a massive week or two-week selloff in November still means the Wall Street types can still start a big rally before the end of December. What does that matter? People on Wall Street get their bonuses based on their performance at the end of December and these folks won’t endanger their bonuses.
The problem is, they don’t necessarily get paid for performance as they do for the amount of assets they control. A big selloff gets everyone a bit more excited.
This is why you need to pare down your stock holdings.
When this thing goes, it will be fast and furious.
If you’re holding solid, long-term stocks like Centurions (stocks that have been around for a century or more) or Dividend Aristocrats, forget about the market’s short-term gyrations and stay the course. If you want to put new money into something, I don’t see much I would want except gold and silver, which are great places to keep your powder dry and blood pressure under control until 2017.
— GS Early