To be confident is to be foolish. That's how I feel every day now with the whippy market keeping the average investor's head on a swivel of a justifiable lack of conviction.
Today's just another day when you look foolish at every turn. Here's a classic example. This morning my CNBC colleague David Faber broke the story that Qualcomm (QCOM) had won a preliminary injunction in an obscure court in a small provincial court in China. The news caused the stock to plummet from $168 to $164. Then, on Scott Wapner's Halftime Show, the panelist, Josh Brown, Jon Najarian, Joe Terranova and I all said, unanimously, that Apple's (AAPL) stock had hit an interesting level to buy.
The stock turned on a dime and then rallied four bucks.I have scoured the wires: nothing else happened other than we said we liked it!
You know what that is? A sign that traders will take their queue from anything.
I by no means am denigrating our product. I am saying that the market is way too mercurial because the underlying issues are so fluid. Let's just stick with Apple for a second because it is the perfect metaphor for this market.
First, at its apex Apple's capitalization hit one trillion dollars. It went below $800 billion today. The stock peaked on October 3 at $233. That happens to be the same day that Fed Chief Jerome Powell went off the reservation and began to talk about how we may need many more rate hikes to cool the economy, maybe even more than the economy can bear. Talk about an ill-advised series of statements.
In retrospect and not coincidently, because his statements were such confidence bruisers it looks like that day may be the top of the entire business cycle.
It gets worse. The next day Vice President Mike Pence gave a speech at the Hudson Institute that talked about containing China's power by starving it of the money it needs to keep expanding. It was a fiery, wide-ranging speech about how China's a worldwide scofflaw when it comes to far more than trade. If you didn't know better you would think he was speaking of the old Soviet Union a couple of years after World War 11.
If the Powell's anti-inflation comments were the left uppercut, Pence was the right hook. The stock's really not had many up days since then even as it reported a pretty darned spectacular quarter on November 1.
Because Apple announced that it was no longer going to breakout sales of iPhones when it reported. Now some analysts -- in retrospect the smartest ones -- surmised that it was time to take profits in Apple because of this change. I have no idea if Apple knew what was about to happen or not, but we began to hear reports of pushbacks and cancellations from many of the companies that make cellphone components for Apple.
What's the problem? We don't know. Some theorize the phones got too expensive. Others say there is a slowing in China. Still others say that the Chinese government wants a slowing in China, hence the court ruling that knocked down Apple today.
No matter what, you can see how conviction can melt given the plethora of news about the fed and the economy, the trade relationship between the U.S. and China and the lack of a statement from Apple about how it is doing with cellphone sales coupled with a fear that perhaps Apple will actually pre-announce that previous guidance is too bullish.
I do not know what will happen. I know this: Apple makes the finest consumer products in history, devices that represent great value that are all part of a fabulous ecosystem that includes, Macs, watches, payments and the App stores. These have all combined to produce a services revenue stream for 1.3 billion users that will only grow and grow and grow in importance even if sales stall at what will still be a highly elevated level.
At these prices the stock sells well below the average equity in the S&P 500 as analyst after analyst who raised their price targets as the stock went up now slash them as it goes down. It's pretty hard to have conviction about this stock, though, when the selling is so pronounced and the analyst community has turned so negative on the company.
Where else is conviction being tested? How about the upcoming Fed meeting on December 18 and 19.
Here, like Apple, if you have conviction about the outcome of that session I think you may be faked out as this market loves to fake people out.
Consider all of the permutations here. Two months ago Jay Powell committed the Fed to four lockstep rate hikes because the economy was so strong. Since then housing has fallen off a cliff as mortgage rates hit 5%. Auto sales slowed. Electricity use came down. Commercial real estate cooled and loan losses at regional banks began to climb. In a self-fulfilling prophecy the stock market shed trillions of dollars in wealth. Even last week's non-farm employment report was a clear miss causing people to wonder whether even the most important reason to hike, full employment concerns that could breed wage inflation, might be off the table. At the same time raw costs have become to come down because oil cratered and even OPEC with a call for a supply cut, hasn't been able to staunch the decline. Oil going down has a two-fold impact on the economy: it cools the hottest job market, Texas, and it allows individuals to have more money as oil is a real tax on the system.
It's an optimal time for the Fed to say, you know what? We don't have to raise rates. Let's wait to see what happens. We will talk to you at our January meeting. Merry Christmas and a Happy New Year.
However, the Fed can't really do that without real negative consequences. I believe there will be plenty of observers who reach a conclusion that there must be something very wrong in the economy for the Fed to go from full bore rate hikers to no rate hikes. Given the horrendous action in the bank stocks, I think a consensus would quickly revolve around some mysterious credit losses that will scare people out of stocks.
Darned if they do, given the slowing economy, darned if they don't, because they had led us to believe that things were stronger than we understood them to be.
Oh there are so many other issues that test our conviction every day and overwhelm us. Does a day go by now without a revelation from some prosecution that President Trump was involved with something nefarious involving payments, the Russians, whatever? Does a day go by where we can figure out our trade relations with China? When you consider that the president was all smiles with Chinese President Xi Jinping at pretty much the same time that Canadian authorities, at the behest of our government, arrested the CFO of one of the largest companies in China for what amounted to extremely serious charges of violating our trading ban with Iran.
We have no idea how this will end up. If the stock market keeps going down will President Trump release her and make nice to the Chinese? Or is President Trump going to stick to the Pence gameplan and continue to attack the Chinese for unfair trade and military practices.
Almost every issue has two sides except those with three or four. In that environment is there any wonder that the market's unreliable and treacherous? Moreover, if you don't think it is, you have ice water in your veins. Bully for you, but the last time I looked it was better to have blood in them.