Sometimes, you can judge a market by the way it reacts to negative news. If the market turns oblivious or indifferent to the bad story a few days after the downside event and the stock starts rallying again, then you have something special on your hands, and not a garden variety market situation. Normally, these things linger or create prolonged selloffs. In this tape? Bad news is packaged, forgotten, and the upside games continue anew.
I explained that concept yesterday, when I talked about how the stock of giant railroad CSX Corporation (CSX) is now above where it was when we learned of the tragic news of its CEO Hunter Harrison's death after a 10% swoon immediately following his passing. Given that CSX's stock ran up 25% on his hiring, you would expect it could fall at least half of that, because how much was he really able to accomplish in less than a year's time? How quickly the market forgot, as it fell back in love with the rails and the stock -- and the group -- raged higher.
But it sure isn't just CSX.
I can name six situations when bad news has been totally forgotten and errors forgiven or absolved, simply because the bulls are looking for any bargains they can find. The dip's the thing.
Let's start with an obvious one: Wells Fargo (WFC) . Here's a company that is still very much in the cross-hairs of the regulators. It's made numerous admissions of account-opening chicanery, and we still don't have final numbers. The Federal Reserve could take severe action against the bank. Their own hand-picked investigation team, lawyers from Shearman & Sterling, blasted the culture that allowed the shenanigans to occur.
And how is the stock doing? It's been blasting through the roof, and is now taking out $60 after languishing in the low $50s for ages. No one talks about the illegal activity anymore. Somehow, it's become more like an indiscretion, and what matters is the Fed and only the Fed.
How about Nucor (NUE) ? This steel company has pre-announced shortfalls three times. What's the stock done? How about go up pretty much in a straight line, a 10% move higher after the last shortfall was announced, and it was a meaningful one, a real meat axe, not a butter knife, of a cut.
Why did it rise in the wake of a horrendous slice? Because of the hopes for federal infrastructure projects and a prospective tariff against Chinese imports. Action Alerts PLUS club members know that I have been endlessly disappointed in the company, but not the stock, which is hot as a pistol. They are two different animals -- a bear and a bull, so to speak. Everyone seems to have forgotten the last pre-announcement, even as the company has given no assurances that it can make the next quarter.
Disney (DIS) had been languishing at the $108-$109 level because of concerns about ESPN and worries about whether the Fox deal will be closed. Then, a Star Wars film does a billion bucks worth of business, and the stock jumps four points. That's a $6.0 billion gain on one movie's receipts. Yet, I have to ask, did anyone really expect anything less than one billion? It simply wasn't revelatory, yet it somehow washed away the ESPN concerns that burned so brightly a week ago.
Two months ago, there was a major panic in Macy's (M) stock as investors grew concerned that it wouldn't have enough money to pay its dividend. All assurances failed, even as the company has vastly improved its debt position, as well as generated nice cash flow improvement. Now, with some cold weather and some chatter about stabilization, the stock has zoomed almost 50% and nobody says a peep about the safety of the dividend anymore. Who knows what will happen here if Nordstrom (JWN) comes back and says it is in play again and wants to go private.
United Parcel Service (UPS) announced on Dec. 5 that it was having some problems meeting holiday e-commerce demand. The stock got hammered. Tuesday's $4.52 advance erased what was left of the decline from $124 to $116, and now it is poised to advance above that price without any comfort that things got better for the company.
Finally, in the first week of December Schlumberger's (SLB) stock fell from $64 to $62, after it gave a talk at a Cowen conference that led to estimate cuts. Now it is up seven points from those cuts, with no real sign of improvement in its service business even as I like the stock very much. Sure, oil has risen, but numbers are coming down anyway, because nations and companies aren't boosting their drilling budgets yet. It should be falling, not rising, and in the old days that's exactly what it would do.
These are just a few of dozens of examples of negative commentary that the market simply forgot a few days later, or simply doesn't care about anymore. It's an absolution, a blanket pardon, and a memory lapse all rolled into one big ball of bullishness that's a major prop behind the spectacular rally we have enjoyed for more than a year now, and yet it's never talked about. There, I just did it.