Risk Blackout

In financial euphoria episodes, investors become immune to the risks of capital destruction by blacking out to their normal risk aversion. Usually, these episodes come from extrapolating the recent past out many years into the future. What can we learn from other disciplines about blacking out? How did this happen with investors in the past and where are risks in the U.S. stock market blacked out today?

In his most recent book, “Talking With Strangers,” Malcolm Gladwell explains how intoxication from alcohol moves as blood alcohol levels rise. At somewhere around 0.14 to 0.15, intoxication moves to what can be described as a “blackout.” The person is active and functioning, but is not conscious of what they are doing. He discusses the terrible mistakes young people make in college from becoming overly intoxicated at these levels.

Over my 40 years of investing, there have been multiple episodes of investor blackouts. As the chart below shows, my first experience was in gold, oil and other inflation beneficiaries circa 1981:

Source: DoubleLine Funds, BofA Merrill Lynch Global Investment Strategy, Bloomberg. Data for the time period Jan. 1, 1977 to Dec. 31, 2018.

Inflation was running at 11% as 79 million baby boomers were forming households, buying houses, cars and having children. Too much money was chasing too few goods, and prices were overwhelmed. Investors moved nearly all their money into inflation hedges and short-term, interest-bearing securities and blacked out to the risk of doing so. Equity ownership among households dropped to 10% of total household assets and the energy sector of the S&P 500 Index reached 28% of the total market cap. Inflation investments were completely intoxicating, and investors were blacked out to the risk of extrapolating the recent trend. Gold and oil plummeted in price for the subsequent 18

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US Stocks Edge Higher Tuesday

U.S. stocks were in the green on Tuesday, with several companies reporting financial results, including Kimberley-Clark (NYSE:KMB), Procter & Gamble (NYSE:PG), Hasbro (NASDAQ:HAS), Texas Instruments (NASDAQ:TXN) and Snap (NYSE:SNAP). The Dow Jones Industrial Average gained 0.33% to 26,916, the S&P 500 Index rose 0.19% to 3,012 and the Nasdaq Composite Index slid 0.13% to 8,152.

Shares of United Technologies Corp. (NYSE:UTX) gained more than 2% on Tuesday after announcing third-quarter results. The company posted earnings of $2.21 per share on $19.5 billion in revenue. The company beat earnings estimates by 18 cents and revenue expectations by $190 million.

“United Technologies delivered another strong quarter with 5% organic sales growth, as well as margin expansion across all four businesses,” Chairman and CEO Gregory Hayes said.

The adjusted operating profit margin increased 120 basis points to 15.3%. Further, the cash flow from operations was $2.5 billion and capital expenditures were $529 million, resulting in free cash flow of $2 billion.

Looking ahead to the full year, the company expects sales between $76 billion and $76.5 billion versus the prior outlook of $75.5 billion to $77 billion. It also projects improved adjusted earnings per share between $8.05 and $8.15 and free cash flow in the range of $5.3 billion to $5.7 billion for the year.

During the quarter ended Sept. 30, the T Rowe Price Equity Income Fund (Trades, Portfolio) boosted its holding by 66% to 265,000 shares, while Steven Romick (Trades, Portfolio) reduced his stake by 10.5% to 2,235,946 shares. Jim Simons (Trades, Portfolio) sold out of the stock.

Gainers

Losers

Hasbro Inc. (NASDAQ:HAS) -15% Kimberly-Clark Corp. (NYSE:KMB) -6.2% McDonald’s Corp. (MCD) -4% Merck & Co. Inc. (MRK) -3.7% Albemarle Corp.(ALB) -0.9%

Global markets

The main European stock markets traded in the green.The U.K.’s FTSE 100 advanced 0.68%, France’s CAC 40 rose 0.17%, Germany’s

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Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

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Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...

Travelers, McDonald's stocks exact 150–point toll on Dow as broader stock market ends lower amid political clouds

U.S. stock indexes skidded lower into Tuesday’s close, amid negative headlines on Brexit and reports related to President Donald Trump’s impeachment inquiry. The Dow Jones Industrial Average DJIA, -0.15% closed nearly 40 points, or 0.2%, lower at 26,788, with a post-earnings skid for shares of Travelers Cos. Inc. TRV, -8.29%, off $11.76, or 8.3%, and McDonald’s Corp. MCD, -5.04%, down $10.58, or 5%, combining to deliver a 151-put headwind to the blue-chip index. Meanwhile, the S&P 500 index SPX, -0.36% closed down 0.4% at 2,996, slipping below a psychologically significant level at 3,000, while the Nasdaq Composite Index COMP, -0.72% finished 0.7% lower at 8,104. All closing levels are on a preliminary basis. The Wall Street Journal and others reported that U.S. diplomat Kurt Volker told the Ukrainian president he needed to convince Trump he was willing to investigate corruption and alleged Ukrainian 2016 election interference against former Vice President Joe Biden and his son, said the paper, citing people familiar with the former envoy’s recent testimony to Congress. The disclosures may intensify the Congressional investigation into allegations that Trump withheld federal funds in exchange for a probe into a political rival. Separately, investors focused on on Brexit after U.K. lawmakers endorsed Prime Minister Boris Johnson’s plan to leave the EU but voted against a fast-track plan that would have seen the country leave the trade bloc by Oct. 31, increasing some uncertainty around Brexit.

Read More Here...