The Animal Spirits have turned savage on Wall Street as stocks post their worst day in years. Time to take personal inventory and make a shopping list.
I started running money in 1997, straight out of graduate school. Underfunded and overconfident but with the magnificent good fortune to be working in San Francisco during the original Internet Bubble. It's been a journey. A deeply weird and eventful journey.
My career was almost killed in the crib by LTCM and ripple effects from the Thai Baht, a currency I haven't bothered to think about before or since. I survived the Dot.com bubble and crash, the GFC and a downgrade of US debt. Five years ago this week then-President Donald Trump declared COVID-19 a national emergency. Six days later California became the first state to issue Stay-at-Home orders and the country was on its way to shutting down almost-but-not-quite everything for 18 months.
Let me tell you something, "What happens if every public space closes?" was a hard Headwind to price into your spreadsheet. February and March were tough for Consumer Discretionary and pretty much everything else:
There's a certain smell and vibe to meaningful market corrections. The bad news comes in wave after wave. That's not (just) the algo feeding you headlines. People seek out bad news in a way they simply won't turn out for on the upside. When stocks are moving higher everyone is a genius. They don't want advice. When there's blood in the streets people suddenly care quite a bit about what the pundits have to say.
Which is generally a mistake. If the pundits knew stocks wouldn't be going down 1% every day.
Stocks started breaking a month ago and picked up speed last week. Monday was a landslide. Smaller cap, risk-on stocks in particular took a shelling as bids simply disappeared. Defensive names collapsed. Walmart is down 10% since reporting results that, in retrospect seem positively giddy. Walmart is going to grow earnings and is looking for positive comp store sales. Kohl's executives would sell a kidney to get to positive comps from where they are right now as the company just guided to another year of misery as it spirals to oblivion:
Almost every retailer has told us February was soft, at best. For a retailer at Kohl's it only takes a drop of a few percentage points of selling to trash a whole year. For a good company like Dick's, which also reported this morning a consumer drop-off leads to a little good old-fashioned prudence when it comes to forecasting this year. Results were fine but the stock isn't going to go up on "fine". Not in the tape.
The best bullish catalysts are vague but real. Large but unquantifiable and well into the future. All the great growth companies start out losing money in pursuit of a huge payoff. That way next quarter doesn't really matter in terms of financial results.
The most harrowing bearish catalysts are also vague but real. No one has any real idea precisely how all this DOGE / Tariff / Trade War stuff is going to play out, exactly, but the consumer is freaking out and it's leading to immediate earnings hits with more to come. A recession is now seen as a coin-toss outcome, at best.
The first quarter is going to be weak and the second quarter doesn't look great. Stocks are way off the highs but still not cheap. Earnings beats are met with a shrug and guidedowns are getting destroyed. There are certainly trades available but I'm making lists of names I like on the long side for the long term at lower prices.
I make the list because it keeps me from overtrading this tape. I use price targets because, if the stocks get to those prices buying will be the last thing I want to do.
Consumer Shopping List
Sell-offs tend to end in a whoosh. As the correlation moves to 1.0 the market throws out good and bad names.
We started the Round-Up officially last week. It's time to build a real portfolio. I normally want to have a mix of about 8 longs for every 2 shorts. Right now the best shorts have, shall we say, priced in some weakness. RH to name one JC and I have discussed has gone from $416 to $220 since December. It was down 10% yesterday on no news. There will be better times to short RH.
I want longs and I want to buy them into weakness. This is what weakness looks like.
Here's my starting 5 Names to Own Shopping List
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