If you think last week's rally was for real, here's one thing you don't want to do: look at the charts. That's because the rallies we had, whether they be in the oil patch or the industrials -- the epicenter of the big comebacks -- simply took you back to no man's land from an area deep in the rabbit hole.
For every Honeywell (HON) or 3M (MMM) there's an Eaton (ETN) or an Emerson (EMR) or a Boeing (BA) that's going nowhere fast.
But you know what is sainted? The stocks you would buy when a recession is so near and obvious you would never second-guess it. The movement in these stocks is so powerful as to conclude that the Fed is going to raise rates four times while selling off its gigantic bond inventory, sending the dollar roaring and totally obscuring the powerful PMI that we got last Friday.
What are the standouts? First, there were some insane moves in CMS Energy (CMS), DTE Energy (DTE) (the old Detroit Edison), WEC Energy Group (WEC) (the former Wisconsin Electric), Pinnacle West (PNW) and Action Alerts PLUS charity portfolio holding American Electric Power (AEP).
These stocks had incredibly outsized moves, and it was like they were receiving all of the wealthy individual money that is frantically fleeing the so-called toll road master limited partnerships. It's extraordinary. The only more powerful move this past week came from Facebook (FB)!
You do not get these kinds of moves unless we are going into a recession where the 10-year Treasury yields 1.75%. I write that because many of these utilities don't even have high yields. This is a total flight-to-safety move.
Speaking of flight to safety, the move in the remaining tobacco stocks is a surefire signal of recession. Reynolds American (RAI) doesn't even yield 3% and Altria's (MO) yield is 3.5%, but the money's pouring into these as it always does when you know the cycle is rolling over. I cannot emphasize to you enough how correlative this group is with a recession. These are no growth stocks, but they always pay their dividends.
There are always a few consumer packaged goods stocks that get loved in a recession. They are the ones that were showing some solid reorganizations, coupled with a decline in raw costs. Few stocks are more of a beneficiary of these trends than the scorching hot Campbell's Soup (CPB), which is considered more natural and more organic than it used to be, and a big beneficiary of deflation. Let's put Hormel (HRL) and J.M. Smucker (SJM) in that same camp of acquisitive companies benefitting from declining raw costs.
Then you have the perennial favorite of Constellation Brands (STZ). I don't know if you have noticed that the maker of Corona and Modelo in the U.S. has seen its raw costs go down while its sales go up dramatically, and now it has added Ballast Point Brewing Company, which is among the nation's fastest growing craft beers. That's right you have a recession-proof product with declining raw costs. What's not to like?
Finally, the action in two other staples, the spike market, namely McCormick (MKC) and the milk market, in Dean Foods (DF), taking off here. Milk and spice are part of the cook and eat at home tradition that always comes into play in a recession.
That's why those stocks can run with such alacrity.
Now stocks can be wrong. They can call many more recessions than we have had. Plus, I am more sanguine about the U.S. economy, but only if the Fed gets off its destructive course.
If it doesn't, then look above, because this is your playbook for the decline and fall of the U.S. economy.
