Are we earnings-dependent? Macro- dependent? Or event-dependent? Which will take us up or turn us down this week?
We find out today, and it's going to be a very big deal because in 2015 anything that happens seems to be blown out of proportion instantly.
If events control, then the Shire buy of NPS Pharmaceuticals (NPSP) this weekend for $5.2 billion could play a role in things. I have been championing this company and Dr. Francois Nader, the CEO, for years and years, because the orphan drug model is so lucrative for those who play in it, and NPS has been a fascinating exploiter of the rules of the biotech game. Its Gattex drug for Short Bowel Syndrome was often underestimated by hedge funds. In fact, about 10% of the float of NPSP is short, a testament to the inherent skepticism about NPS, Nader and the orphan drug model.
Bad call, that short. And it's a fitting tone -setter for the JP Morgan (JPM) healthcare conference that starts today, where many NPS ¿like companies will present.
If it's earnings-driven, then you have a real question mark in Alcoa (AA), the first out of the gate after today's closing bell. Alcoa had many bears crawling all over it in the mid-single digits just when aluminum was at a low. Subsequently, two things went right for Alcoa: the metal got stronger and Alcoa bulked up on some acquisitions that made it more integral to the aerospace cycle. The stock has since doubled on a series of earnings surprises.
Unfortunately for Alcoa, unlike the bad old days, so many of the bearish analysts have now turned bullish, at a time when the price of the metal has fallen pretty precipitously just in the last two months. So the question will be how much of the rest of Alcoa, the proprietary side, can overcome any primary metal weakness.
Given the run, it has to be quite a bit, even as the stock has stalled a bit of late. I say stick with Alcoa even through an earnings disappointment no matter what, because the acquisitions may not have saved this quarter but they should save the year, if you think, as I do, the aerospace cycle is alive and well. That said, anything that throws Alcoa back will be interpreted very negatively by the rest of the market.
I am also still concerned about that disappointing series of retail numbers delivered Thursday night. Five Below (FIVE) and Container Store (TCS) have become totally unreliable. But Bed Bath (BBBY) had seemed to be improving -- it was overly hammered because it had run so much -- and Macy's (M) was just plain surprisingly weak. Of course, the strong Friday employment number put the retail failings in a different perspective. Still, it was just plain disappointing to see so many weak numbers at once, all of which ended up countering the J.C. Penney (JCP) positive surprise.
If the macro controls, it's simple: all bets are off for the bulls. Macro means oil, rates and Europe. I don't like oil here; won't until it tries to hold $43. When oil goes down, interest rates go down and when rates go down we get a ton of fretting about the world slowdown. That, of course, causes pressure on equities.
Plus, we have a bunch of banks that report this week and if the 10-year is at 2% or below, then the banks -- Wells (WFC), JPMorgan, Bank of America (BAC) and Citigroup (C) --will not be able to deliver on the bottom line because of a still-shrinking net interest margin. Plus as we get closer to when the ECB is expected to do something, we almost certainly have to believe that the Europeans will screw it up, right? I have little faith in Europe without structural reforms and much lower can bonds go over there.
So the macro can be three for three bad. Given the two-day run we have had -- minus Friday -- that makes me nervous. You can't depend on Alcoa's quarter ¿ again, as much as I like the stock. The NPS bid might not be big enough to influence things.
Best advice? Hold your fire.