Coca-Cola is up about 40% this year.
If you want a reason to be deeply concerned about this market, it’s that chart. I’m not much of a chart guy, but historically speaking, this is about as bad as it gets.
Coke closed at its 29th record high of the year on Wednesday. If the gain holds through December, it would be the stock’s biggest calendar-year rise since 1996, and it now trades at about 29 times this year’s expected earnings, against an average of about 24 over the past five year-ends.
I don’t think Coke is dangerous because of Coke. I think it paints a picture of the S&P 500 that’s about as grim as anything I’ve seen.
Going To The Mattresses
Coke is supposed to be a low-beta stock, meaning it’s supposed to move a fraction of what the S&P 500 moves. This year it’s been running several times faster than the index.
What you’re seeing is people getting smoked in other stuff. Their home got wrecked, and they’re looking for a new one in a less volatile neighborhood.
Then look at Procter & Gamble. It’s up about 20% this year, about half of that in the last month, because they make toilet paper and toothpaste. If you don’t think that’s sheer stupidity, you haven’t been in this business long enough.
As they’d say in the mafia, they’re going to the mattresses. This is duck and cover.
Hiding In Plain Sight
Friday morning told the same story. The S&P 500 was selling off, the equal-weight version of the index was unchanged, and the consumer staples fund (XLP) was up 1%. Utilities were still being used for defense too.
Everybody is splatting risk into what they think are little hideouts. The problem is that they’re not hiding at all. They’re hiding in plain sight.
The rotation game is going to crack. When the market goes into what I call a correlation state, where everything starts moving together, those hideouts get hit along with everything else. And when you realize you can’t rotate anywhere anymore, it’s going to be too late.
I think Coke is a great short here. I may be way too early, but I ain’t wrong.
So do yourself a favor this weekend.
Pull up the “safe” names in your portfolio, the staples, the utilities, the dividend payers, and line up their 2026 gains against the S&P 500.
If your defensive stocks are outrunning the market, they’ve stopped playing defense, and you want to know that before the rotation cracks.
To your success,
Don Kaufman
