Why Art Cashin Is Nervous: "10% Of The Dow Has Provided 50% Of The Gains"

Tyler Durden's picture

From Art Cashin of UBS:

We've noted over the last two weeks that the Dow Industrials have been diverging from most other indices and particularly the Dow Transports. An important part of the divergence has been the relative narrowness of the rally in the Dow. In today's WSJ, Justin Lahart took note of the narrowness:

Americans cheering the U.S. stock market’s latest milestone should pause to thank the rest of the world for making it possible. The Dow Jones Industrial Average breached 22000 Wednesday after rising more than 2000 points so far this year. Boeing counted for 563 points of that gain. About 60% of its sales come from overseas.

 

No. 2, contributing 283 points, is Apple, which gets two-thirds of its sales abroad.

 

No. 3 is McDonald’s, contributing 239 points; foreign sales count for about two-thirds of its total.

 

Indeed, while there are notable exceptions (hello, International Business Machines ), the greater the share of a company’s sales come from overseas, the better its stock has tended to perform this year.

 

Data from FactSet and S&P Dow Jones Indices show that companies in the top half of the S&P 500 by overseas sales exposure have had a median return of about 16% so far in 2017.

 

Among those in the bottom half (which includes companies that don’t break out foreign sales—in many cases because they are negligible) the median return is 8%.

So, of the 2000 point rally in the Dow this year, more than half of those points have come from just three stocks – Boeing, Apple and McDonald's. So just 10% of the Dow provided over 50% of the gains. That narrowness almost guarantees divergence.

At any rate, the overnight rally in Apple took the Dow through the 22,000 barrier on the opening bell. Briefly the other indices went along for the opening rally but they changed their minds in a nano-second. Soon the Russell, S&P and Nasdaq had slipped into negative territory and would struggle there for much of the day. The Dow managed to hang onto plus territory primarily thanks to Apple. Afternoon trading saw volume dry up as the averages undulated trendlessly.

At the close, the Dow held above 22,000 but declines beat advances by about 17 to 11. The telecom sector was the weakest (-1.3%) and energy stocks also closed lower despite a mild rally in crude.

All in all, it has been a great year for cap makers as we have already moved through three thousand point milestones already this year. All on a very narrow base.

Yet Two More Cautions – Jason Goepfert of SentimenTrader noted yet two more cautionary precedents. Here's a bit of what he wrote:

  • Barking with the big dogs. The Dow Industrials continue to reach new heights, while small-cap indexes slide. The Russell 2000 has weakened enough to close below its medium-term 50-day average on Wednesday. The Russell as a leading indicator for the broader market has a mixed record, but when it loses its 50-day while the Dow reached a new high, almost all stock indexes have lost ground over the next couple of weeks.
  • The Dow just can't lose lately. Wednesday marked the 7th straight daily gain for the Dow, and of course, a multi-year high. Remarkably, this is the 4th time in the past 200 days that the Dow has managed a streak like this, the most in its history. The last time it managed even three such streaks was in the summer of 1987, which led to a bit of trouble a couple of months later.

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DownWithYogaPants's picture

Von Firstenberg! 

If he's worried I'm worried because my name is not Cash-In.  Nor is it cash-carry.

Manthong's picture

Yeah, Art…

And .0005 percent of the population get 99.999 percent of the capital gains.

Look for the exits… be ready to bail…. Tuck your tail twixt your legs… butt you are always there  looking for the exit….  go f’ng retire already  

junction's picture

Apple is the outlier, it is facing real competition overseas from Chinese cell phone companies.  Lucky for it that it has that giant overseas cash horde stored in a Reno, Nevada trust, money that can be used for stock buybacks.

GUS100CORRINA's picture

Why Art Cashin Is Nervous: "10% Of The Dow Has Provided 50% Of The Gains"

My response: EARTH to ART. This kind of CRAP has been going on for last couple of years. But even more interesting, I want to suggest that it is NOT the 10% that shuold concern you, it is the whopping 400 billion+ in MARGIN DEBT and HUGE CORPORATE DEBT that has been the FUEL for the advance of the 10%, This is where the real problem lies. 

We are over leveraged way beyond normal levels and you can take that to the bank!!

Muppet's picture

+1.  Art, the Dow is same as it ever was.

Av8or's picture

That's like an ice cream man named, cone.

jasony's picture

Art Cashin is one of the better hosts on CNBC. The rest are crap.

Muppet's picture

Wrong.  Rick Santelli is a standout.

Handful of Dust's picture

Hard to believe Boeing is $245. I remember when analysts were predicting it would drop to 92 when the stawk price was about $115. During this same interval dozens if not hundreds of energy-related companies have gone bankrupt.

adr's picture

For new planes all I see overseas is Airbus. There isn't a 787 option for the routes I fly and the A-380 is an incredible plane that makes a Boeing 747 look like a Model-T.

Pernicious Gold Phallusy's picture

Model T introduced 1908.

B-747 introduced 1970.

A-380 introduced 2005.

It won't be a fair comparison for another 15 years.

two hoots's picture

There is no one economy and there is no one market.   Everything money is diverging. 

Too-Big-to-Bail's picture

I think they Call it Dow Syndrome -- some special earners but mostly retarded

hola dos cola's picture

Move to the sidelines or go short for tomorrow.

And forget about 'buying the dip', because it ain't none.

Deep Snorkeler's picture

Wow, a FANG algobot market atop

a FIRE economy.  What could go wrong?

Let's send more troops to Afghanistan

Pernicious Gold Phallusy's picture

So what? 10% of my body surface area provides WAYYY over 50% of my pleasure.

adr's picture

I think you're fibbing on the 10%. But hey, it's the internet.

Pernicious Gold Phallusy's picture

Burn charts show it as 8% in children.

shizzledizzle's picture

Dear Art,

Don't worry, be happy.

Yours in Christ,
Janet Yellen

Fantasy Free Economics's picture

There is one thing guaranteed. There will be massive intervention in the market this fall.

http://quillian.net/blog/the-end-of-keynesian-economics-hopefully/

Everything possible is being done to draw short sellers in to be squeezed.

There is massive supply hanging over this market. Odds are there will be an attempt at a controlled correction.

Will it work? Chances are that it will. A crash is highly anticipated. That seriouslly reduces the chance of a crash. The FANGS are in a controlled correction right now.

I would expect a fall market correction to follow a pattern similar to what we are seeing in the FANGs. If a crash occurs, I expect it will occur if no meaningful demand is present after an initial drop of at least 10%,

hola dos cola's picture

They'll have to chuck a lot of money at it. It won't hold, in my opinon.

It's internationally fuelled.

What goes around and all that jazz...

The Duke of New York A No.1's picture

A trade war with China should do wonders for those overseas earnings.

 

 

Snaffew's picture

something is gonna happen real soon in these markets---either another ludicrous pop, or, more likely, a steep selloff and a surge in pm's.

graspAU's picture

We all remember that when the DOW was having troubles during 2008-2010, they just switch out some bad performers and put in some good ones, problem solved.

kenny500c's picture

Last time the market sold off gold performed well, it is doing okay now so I went long and will wait for the next equity downdraft and hope the nascent gold bull market kicks into a higher gear. 

silverer's picture

Art Cashin: don't worry. The market is rigged.