Here we are, in the middle of earnings season, and we can now make some judgments about what's working and what's not away from the hubbub of Washington. Oh, and let's make something clear, the shouting from the Capitol isn't the sole driver of stocks at this point.
The sales and earnings matter as much as ever, so if we get an emotional futures-led S&P 500 selloff on what could be endless Trumpian controversies, the stocks of the companies that just demonstrated the best fundamentals as part of the themes I am about to outline will be the ones to buy, not sell.
First theme: Some signs of life from BRIC. Remember when Brazil, Russia, India and China were the drivers of world growth and not the drags on it? A new government in Brazil has worked in conjunction with farmers to produce a far more robust agricultural spend. That's helping the big equipment makers like AGCO (AGCO) and Deere (DE) , as well as the seed companies. Latin America as a whole is better. Every consumer packaged goods company that sells into Argentina and Columbia had far better year-over-year numbers than anyone thought possible.
Russia's performing well year over year, better because of a stronger ruble, but few companies except the oil service businesses have been impacted positively so far. Any lessening of the sanctions, though, could create a positive earnings scenario for many international companies.
India went into reverse when its government, in an attempt to jumpstart lending, insisted that individuals stop hoarding large bills and exchange them for smaller ones. That attempt to end what's become pretty much a cash economy caused a total nosedive in sales for many companies including Procter & Gamble (PG) , which explained how the ban on large sales hurt profits but that the company expects a bounce back next quarter. It will be interesting to see if there is any negative impact on Action Alerts PLUS charity portfolio holding Apple (AAPL) , which sells millions of phones in India.
How's China? Better than expected almost everywhere, from Otis elevators for United Technologies (UTX) to Caterpillar (CAT) for all sorts of machines. All of which confirms some of the more positive government data of late.
I know it's not BRIC, but every major developed country in Europe has improved year over year for almost every business, with only France showing an anemic recovery. You do have to question the ECB's policies of keeping rates low as they seem designed only to take business away from others, notably the United States, with the concomitant weaker euro.
The transports have become a huge bright spot, and that's a sign of budding strength. Despite some rather tepid results of the rails, Union Pacific (UNP) , CSX Corporation (CSX) and Norfolk Southern (NSC) gave some pretty rosy guidance for almost all cargos, including coal. The market lapped it up. I know that the market greeted last Friday's report of American Airlines (AAL) with scorn. American sounded quite defensive about competing overseas with ultra-low cost carriers, and that narrative drowned out an awful lot of good news. We haven't heard from UPS (UPS) and FedEx (FDX) yet, but the robust nature of their stocks has boosted the index.
Oil at $50 turns out to be a little more like oil at $75, given the dramatic decline in costs for drilling. There are two parts to this story: when oil surged to $100 in 2014, many oil executives lost all discipline and paid way too much for services. When those contracts ran out, many were not renewed which caused a glut of plant and equipment. That surfeit, plus technological breakthroughs, have jumped the rig count to much higher levels than even six months ago and are on their way to going back to 2015's range, when there was still much hope for a V in oil price. The Permian's costs, depending upon the spot, seems to be about $25, which has turned that area into a boom; it's the same in two Oklahoma plays, STACK and SCOOP.
Oil companies that bought other oil companies during the downturn are printing money, but the service companies are still dealing with some lower contracts or some contracts that were too favorable to the oil companies to get them through the rougher times. They are also facing a slower international picture that could pick up by year-end, according to Schlumberger (SLB) and Core Laboratories (CLB) , the two I like to go to as barometers of the industry. United Rentals (URI) appears to be a major beneficiary of the return to drilling; its rental equipment for both pipes and oil pad construction stand out as a clear winner, just as it was a hapless loser in the downturn.
Many bears had chosen to target the aerospace industry as one that could be ripe for the mauling. But Boeing (BA) didn't comply; neither did General Electric (GE) , nor Honeywell (HON) . We knew there was a glut in wide bodies but strong demand in narrow bodies. We came away with a more sanguine assessment of both the sales and profits from larger planes. This is a big cycle, with impressive momentum that's still creating a lot of jobs.
The stay-at-home-trend seems to have become more entrenched this holiday season. Shopper traffic, whether it be to the street, the mall or the free-standing department store or restaurant turned down in the quarter. Brinker (EAT) , the owner of Chili's, directly confirmed the stay-at-home trend in its incredibly downbeat conference call. Of course, at-home dominance cuts in favor of Amazon (AMZN) and against bricks-and-mortar sales. Video games remain an outsized winner even as GameStop (GME) has become a thing of the past as a way to play Electronic Arts (EA) , Take-Two (TTWO) and Activision-Blizzard (ATVI) demand.
Retailers got the double whammy of a tough holiday season and angst about pending border taxes. They've become the worst group in the book and the lethality seem to be centered in the department stores, Target (TGT) , Walmart (WMT) and, worst of all, the dollar stores.
Every homebuilder reported positive sales and orders, despite the spike in rates. If you didn't know any better, you would think that higher rates drove customers from the sidelines, although robust employment was the watchword on each call. No, Trump's victory wasn't mentioned by any, although the conclusion of the election did get cited as a reason for a turn.
Spending on the home, though, seems to have paused a bit. Whirlpool (WHR) talked about weakness. Sherwin Williams (SHW) had good things to say about paint, but Ethan Allen (ETH) didn't have much good to say about furniture, at least vs. expectations.
The major and regional banks all had good things to say about commercial and residential construction, with the bad loans at lows not for the cycle, but, for many, their entire lifespan. Some may be skeptical of these numbers, but American Electric Power (AEP) , the largest transmission company in the country, with big presence in the south and Midwest, confirmed the newfound economic activity. I like its figures more than any bank's and Nick Akins, the CEO, was more than effusive about a definitive turn.
Can't end without talking about the strongest trend in tech: the data center. The need for more and more power and storage produced fantastic numbers for any company even remotely connected to the data center, because of all of the date that machine learning and artificial intelligence and autonomous driving are leading to, not to mention the explosion of e-commerce and surveillance.
The personal computer was stronger, the equipment needed to make the cellphone less latent and for video to be more powerful, just infiltrated through everything from semiconductor test and equipment to disk drives to cloud based solutions for customer service. It's a trend which, while not in its infancy, can be cashed in on during any downturn, especially a politically motivated one, because of the secular nature of its advance.
That's a lot of trends with oil, aerospace, stay at home and the data center having massive implications for hundreds of stocks, both positive and negative. You need to stay within the lines of these if you fear that any sort worry about the tripod or about the ratcheting up of political tensions by the new president and by his sworn enemies.
