It's ridiculous that the action in any one stock could mean so much to a stock market as big as that of the United States, but because of a huge quarter from Netflix (NFLX), this market's having a fantastic day.
Plenty of people will try to ascribe this rally to the possibilities of a major initiative by the European Central Bank, when it speaks tomorrow about the intention to buy a lot of assets, to get Europe going. But these tend to be the same people who think that every move up or down is controlled by a central bank, and stocks are just marionettes.
Other people will say that because interest rates are going higher, stocks can rally, as this is a sign that the world's not coming to an end. But sorry, the world not coming to an end is not a reason to own stocks.
Finally, people might say: "I have heard what the President has to say about soaking the rich, and I know it isn't going to happen, so I am not going to worry about that." Again, quaint thought, but did anyone think that he could get this agenda passed, now that both the House and the Senate are against him?
No, this rally was triggered by Netflix, and the possibility that if everything goes right with a stock you like, you can still make a fortune.
Netflix is an odd bird, one of those stocks that people want to own because they love Netflix. There's nothing wrong with that. I just find it hard to value, which is why I call it a cult stock. It doesn't trade on earnings. It doesn't even trade on revenues. It trades on releases, things like House of Cards, Orange is the New Black, and even Marco Polo, which I thought was a critical bomb, but turned out to be boffo at the Netflix box office. The fact that this stock could rally as much as it had (up 17%) inspires confidence in all who own it. It also induces fear in so many of the pros who are short it, because the company had disappointed, the last couple of times it reported.
I know I play "Am I Diversified?" every Wednesday, and you could say that Netflix is part of the entertainment cohort. Perhaps you think if you owned Time Warner (TWX) with Netflix, you would have to sell one, because Time Warner has HBO. But just as Netflix Chairman, President and CEO Reed Hastings has made clear, there's plenty of room for both. More important, Netflix is an entirely different animal. It is a speculative stock, and the massive move up in Netflix emboldens a ton of people to take action in lots of speculative stocks.
Take Tesla (TSLA). Here's a stock that should have been down, perhaps big, because chief sponsor Morgan Stanley cut its price target based on Tesla's Chinese debacle. This is the kind of stock that, again, is a cult stock. It is heavily shorted and difficult to value, and it is all about how cool the car is. If you were to call me on "Am I Diversified?" and said you owned both Netflix and Tesla, I would object. They are too much alike. They really do trade together.
Think about Amazon (AMZN). Netflix, I thought, took great pains to explain that they are not Amazon, that it is looking for material profitability as soon as 2017. You think you would ever get a declaration like that from Amazon? No way! They are looking for material spending. That's what Amazon lives for. No matter, it is off to the races. Amazon is, again, a heavily-shorted growth cult stock with a substantial user/owner base.
You've got the same issues with Priceline (PCLN). It trades solely with the big speculative stocks almost one for one. We are getting a lot of negative chatter about travel and the strong dollar of late, and that's brought out monster-sized shorting in this juggernaut. But all is forgiven, on a day when Netflix blows the doors off the earnings.
Since Netflix has a real tech component, you can come in and buy the techs that have lagged. Those stocks might feel like Netflix, even as they are only peripherally part of the equation. So Google (GOOGL) and Apple (AAPL) get a boost. If they get a boost, than the corollary companies do well: Qorvos (QRVO), Skywork (SWKS), and even the SanDisk (SNDK), which had recently been discredited after a miserable preannouncement. Netflix cures all.
Almost. IBM (IBM) reported last night, and it was truly depressing, because the company took down numbers to a level that signals a down year. Just like a team that says: "this is a rebuilding year, and we don't expect to win a lot of games," IBM turned off a colossal number of investors and turned others into outright sellers. It is very difficult to own a stock of a company that told you it is going to have a down year, as anyone who has been fleeing the oils of late can tell you.
The difference though, between IBM and the NFL, is that IBM doesn't get a high draft choice because it failed to do well. There are no draft choices in this game.
Of course, there were some other positives that have given this tape a rosy hue. The key health maintenance organization, UnitedHealth (UNH), a big Dow stock, delivered a picture-perfect quarter. That was especially meaningful, because last week Goldman Sachs downgraded UnitedHealth and made me feel that a big miss was coming. If you are someone who is a voracious short-seller, this one looked like a can't-miss. Instead, the short idea went kerflooey, and if you had bet against it, you had to buy it back.
We also got two good bank quarters on top of the ones from Suntrust (STI) and Wells Fargo (WFC), this time from U.S. Bancorp (USB) and Northern Trust (NTRS). These are important quarters, as they show you, once again, that the real problems in this gigantic sector are with the big, hard-to-understand, international banks not the regionals. Notice that Wells is almost back to where it was, when there was so much handwringing about a so-called bad quarter. It was an excellent one.
And oil is stabilizing. Remember what matters with oil. It is not the direction, but the velocity of the move. Oil has stabilized for a couple of days in the mid-$40s, which allows people to catch their breaths, and for companies to be able to make deals and sell properties to preserve cash flow. That's how a Chevron (CVX) or a Nabors (NBR), or even a third tier player like a Weatherford (WFT) can go up, despite some big downgrades and it is how Schlumberger (SLB) can keep advancing after that terrific quarter.
Still, this is a Netflix day where the shorts finally had some fear put into their thinking. Until today the equation was quite different. If a bad quarter got reported, a stock was eviscerated and a good quarter gave you almost no lift. Netflix now inspired trepidation among many a keen-eyed pessimist. At the same time it emboldened people to come back to some of their oil favorites.
And that's how a rally is born.
