Is hope springing eternal, or are the facts getting better? That's the crux of what's going on right now in this market.
You can see it play out right in front of you. A month ago, both Schlumberger (SLB) and General Electric (GE) sounded somewhat somber about their businesses. General Electric, at an analyst meeting, seemed to be lacking confidence that 2013 could be a big year. Schlumberger felt so strongly that things had turned south that it took the extraordinary step of preannouncing a weak quarter.
Today, General Electric came out with a terrific earnings report, and the CEO, Jeff Immelt, was brimming with confidence, talking about his company coming in strong, with terrific orders and amazing prospects, signaling that China is really starting to roar.
Schlumberger, too, told a much better story than it seemed to articulate in the preannouncement. It was almost as if the company had said nothing negative.
Both stocks instantly reacted positively, and both are among today's biggest gainers.
But -- and there is always a "but" around earnings time -- is the reaction to these stocks simply the case of the companies setting low bars, taking away all hope, something that allows both companies to surprise to the upside?
I know that's what the naysayers would crow about.
Or how about Morgan Stanley (MS)? The brokerage reported a dynamite quarter, and CEO James Gorman told a remarkable story of a turnaround with strong businesses and lots of belief that the future can be terrific, particularly in the wealth-management business. The numbers were certainly there, and the stock vaulted higher.
But is that just hope that Morgan Stanley has moved beyond the bad old days when it was perceived to be on the ropes? Another case of no hope to hope?
Then there's Caterpillar (CAT). This Piper Jaffrey upgrade got the stock going, but it is almost totally about hope, hope that the market will look through the coming weak numbers and embrace the stock after a disappointing quarter. I don't know. I think that's a tall order. However, though, I said out loud this morning that perhaps I am not hopeful enough about Caterpillar, having sold it for my Action Alerts PLUS charitable trust precisely because I felt the whole second-half story required a belief, a hope, that things will get better, particularly in China, and that inventories of big earth-movers will have, at last, been burned off.
Finally there is Intel (INTC). Oh my, how much I like this company, and I used to be an Intel-alcoholic, going to new fabs, meeting with executives, buying the stock for my hedge fund.
Now? I feel that Intel has turned into this pitiful helpless giant, openly questioned for its big capital expenditures. Intel knows that the customer is always right, but it seems to have the wrong customers, certainly not Apple (AAPL) or Samsung.
You sure wouldn't want to own this stock on the basis of the quarter or the conference call. But what did management hang its hat on? How did it entice you to think that you should own the stock? Because of hope that the second half of the year will be stronger globally, that the world's economies are going to get better. That made me ask myself, is that a hope that things will get better, or somehow, do they just know it? And if they do, tell me how you know it.
Look, I certainly believe in hope. But in the end, if you are investing, I always say that hope should not be part of the equation. You can hope that the Ravens win on Sunday. But you can't hope for better times and buy stocks because of that hope. We need more facts to get more bullish from here, and the sooner we get them, the more positive I will feel about stocks after the run that they have had.