It has been an torrid, if not downright abysmal year for Morgan Stanley’s chief equity strategist Adam Parker: after starting off the year bullish only to see stocks crash, then flipflopping to a bear just as stocks soared, leading to one of the most bizarre notes we have ever read, in which Parker compared rally chasers to cockroaches, he then proceeded to get the sector rotation wrong while blaming hedge funds and other clients, and ultimately turned bullish just as the market peaked.
Overnight, it appears Parker’s woefully Gartmanesque calls have continued, and in a note titled “Make My Portfolio Great Again?” he shares his views on how to trade the Trump move. Alas, in retrospect, Parker – just like Gartman – got it all wrong for the reasons we explained previously, saying that “every client overnight asked us the same question – “should I buy the dip?” with the futures hitting temporary shutdown circuit breakers as we are typing this around midnight New York time. We’d love to say yes, as we have been avid dip buyers over the past few years. But, our gut instinct is no.“
Considering the 1000 point rebound in the Dow Jones from the limit-down lows, the right answer this – and every other (until the final) time – should have been yes.
Parker’s full note below:
We have frequently been asked for our post–election playbook, and while we are not normally accused of being guarded, we have tried to side-step this issue. Why?
Firstly, we had our own political views about this Presidential election and wanted to avoid any criticism of bias in our judgment or conclusions on the subject.
Secondly, we think forecasting the market behavior after a Presidential election is inherently unpredictable, and certainly using prior data to predict the next few weeks or months of price action would be statistically insignificant and of suspect relevance.
Prior to the 2012 election, the consensus from the C-suite of corporates and clients we interacted with was nearly unanimous. At that time, people felt another Obama term would be stifling for growth and bad for markets, and a Romney victory would cause markets to rally. Without ascribing causality, and assuredly with the Fed and other variables to consider, we can simply report that 2013 was the best Sharpe Ratio year in the history of the S&P500. As our President-elect says, “Wrong”.
More recently, many investors felt a Bremain vote in the UK was probable, “Wrong”, and that markets would fall precipitously following a Brexit, “Wrong”.
What transpired so far is that there was a Brexit followed by a risk rally. With these inaccurate consensus views fresh in mind, we are reluctant to make conclusive statements about the surprising Republican sweep that unfolded last night. Once again the experts were Wrong! We have seen that Trump winning or gaining causes a massive risk-off trade inthe near-term. But, we are less clear on how things might unfold over the coming weeks and months.
Every client overnight asked us the same question – “should I buy the dip?” with the futures hitting temporary shutdown circuit breakers as we are typing this around midnight New York time. We’d love to say yes, as we have been avid dip buyers over the past few years. But, our gut instinct is no. We are more bearish today than we were yesterday because of increased uncertainty. There is no way around that impacting the price-to-earnings ratio in the shortterm, and perhaps until after Trump’s inauguration at a minimum. It is just too difficult to predict what will happen in the first 100 days in a new administration, or frankly, what will happen before then. The funny (strange and haha) anecdote of the night so far is that the Canadian immigration website just crashed due to a surge in demand.
I remember being at a political debate many years ago between then-comedian now-Senator Al Franken and conservative Bill Bennett. Franken was commenting excessively on the economic strength of the country during Bill Clinton’s Presidency, and Bennett said “I wake up every day and take my dog to the beach and we watch the sun rise. I just don’t give my dog credit for it”. I love that line. Economic cycles, interest rate cycles, and earnings cycles for big public companies aren’t always synchronous and don’t seem to be impacted by politics as much as people think. In addition, short-term price action following the election isn’t always sustained. That being said, we just aren’t confident nearterm that buying the dip is sensible.
Well, er, “wrong” Adam, because your clients just missed one of the biggest intraday post-limit downrebounds in history.
And, incidentally, after 7 years of this “market”, have you still not grasped the first lesson of trading in the new abnormal: the only time to buy is when there is uncertainty, because in the great battle between the US president and the Fed, the former will always lose to the latter, and the more uncertainty, the more Fed intervention is assured, especially if the president is one who has laid out a plan to raise debt by $5 trillion, setting the stage for the Fed to monetize much if not all of the trillions in new deficits.
Don’t believe it? Just look at today’s soaring “market.”
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