Art Cashin explains the sell-off: Stop looking for logic in a market trading on momentum

Published Thu, Sep 24 20206:49 AM EDTUpdated Thu, Sep 24 202012:38 PM EDT

What happened to our rally? September started so well, with a huge gain. But since Sept. 3, it's been mostly downhill. The average stock is not doing well. The equal-weight S & P 500 is at its lowest level since mid-July. Health care, banks, energy and small caps are in clear downtrends. As for investing styles, nothing seems to be working in September: Growth, value, low volatility, quality, momentum are all down 5% to 8%. You can't blame traders for getting worried. Of the half-dozen "buckets" that move the markets, only one — progress on treatment/vaccine — has clearly been a positive this month. The rest are moving against bulls: Reopening: worsening COVID cases, particularly in Europe Stimulus: Fed officials are begging for more stimulus from Congress, but the market doesn't think we're going to get it. The Fed is not expanding its programs either. China: elevated trade tensions Valuation: How do you value technology stocks in a Covid environment? Of all the issues the market is grappling with, valuation seems to be the most difficult. Technology stocks have benefitted from coronavirus and work-from-home, yet no one knows how to accurately value them. Case in point: Apple, going from $100 to $138 and back to $107, all in seven weeks. The largest company in the United States rallies nearly 40% in a month, then drops 22% in three weeks? When I am confused and baffled, I turn to my old friend, Art Cashin from UBS, recuperating from knee surgery but still watching the markets like a hawk. Art, what's going on with valuation? No one knows what the right prices are for tech stocks "You are looking for logic in a market that is trading on momentum. It's not so much logic. If we get a vaccine, stocks will rally. In the meantime, what do I do? This has been a narrow and singular rally. I buy Covid-defensive stocks like Apple. So it goes up, then it goes down big because it hits the sell stops. The momentum guys are keeping very tight sell-stops to avoid getting caught up in a big reversal. It's wash, then rinse, then do it all over again. " The fundamental problem seems to be an inability to accurately project future earnings, no? "Again, you're trying to be too logical. You know the old phrase, this time it's different? This time it really is different. This is the first time we had a man-made recession. They shut everything down. You can't compare this to past recessions. That's why your getting so much crazy trading. They are trying to compare this with the old recession playbooks, and it's not the same thing." Where does this end? "When there is a vaccine or something on the other side that makes it worse. Other than that, it's rinse and wash. Keep the sell stops tight, and I'll make nickels and dimes here and there. Bargain hunt, then get whacked with the sell stops." Sounds like Groundhog Day. "It is. What else is there to do? You have to make money. There's none in the bond market. There is only one game in town, and that's this Covid-resistant play."

What happened to our rally? September started so well, with a huge gain.

But since Sept. 3, it's been mostly downhill. The average stock is not doing well. The equal-weight S&P 500 is at its lowest level since mid-July. Health care, banks, energy and small caps are in clear downtrends. As for investing styles, nothing seems to be working in September: Growth, value, low volatility, quality, momentum are all down 5% to 8%.

You can't blame traders for getting worried. Of the half-dozen "buckets" that move the markets, only one — progress on treatment/vaccine — has clearly been a positive this month.

The rest are moving against bulls:

Reopening: worsening COVID cases, particularly in Europe
Stimulus: Fed officials are begging for more stimulus from Congress, but the market doesn't think we're going to get it. The Fed is not expanding its programs either.
China: elevated trade tensions
Valuation: How do you value technology stocks in a Covid environment?

Of all the issues the market is grappling with, valuation seems to be the most difficult. Technology stocks have benefitted from coronavirus and work-from-home, yet no one knows how to accurately value them. Case in point: Apple, going from $100 to $138 and back to $107, all in seven weeks. The largest company in the United States rallies nearly 40% in a month, then drops 22% in three weeks?

When I am confused and baffled, I turn to my old friend, Art Cashin from UBS, recuperating from knee surgery but still watching the markets like a hawk.