Bubble? Or perfect storm of good? When you hit up the chart of any sort of growth stock right now, you are pretty much blown away by the moves you see.
In rapid fire I hit up big cap stocks like Honeywell (HON), Boeing (BA), Ingersoll-Rand (IR), International Paper (IP) and 3M (MMM) and I see them galloping to new highs.
Then I go over to Apple (AAPL), Oracle (ORCL), salesforce.com (CRM), Workday (WDAY), Harman (HAR), Cisco (CSCO), Tableau Software (DATA) and Red Hat (RHT), and it's the same pattern.
Head on over to Cypress Semi (CY), Texas Instruments (TXN) and Analog Devices (ADI) and you can see the breakouts.
Go on to Ross Stores (ROST), Bed Bath (BBBY) and TJX (TJX) and the pattern's obvious. Home Depot (HD) and Lowe's (LOW) tell a similar happy story, as do Dollar Tree (DLTR) and now Dollar General (DG). Ditto Kroger (KR), CVS (CVS) and Whole Foods (WFM).
Same with McKesson (MCK), Cardinal Health (CAH), Medtronic (MDT) and Edwards Life Sciences (EW). Might as well be talking about UnitedHealth (UNH), Cigna (CI), Humana (HUM) and Anthem (ANTM). Up, up and away.
Journey over to Texas Roadhouse (TXRH), BJ's, (BJRI), DineEquity (DIN), Brinker (EAT), Starbucks (SBUX), Darden (DRI), Domino's (DPZ) and best of all, Jack in the Box (JACK), and you just see nothing but steady slope higher.
And finally travel: Marriott (MAR), Wyndham (WYN), Expedia (EXPE), TripAdvisor (TRIP), all so strong. How strong? Enough to get Fritz van Paasschen fired for not moving fast enough.
Yet, to listen to the gloomsters, none of these stocks matters. The aggregates, weak housing starts, subpar industrial production and weaker architectural billings make the recovery seem halting. Retail sales numbers are the definition of anemic. The Fed stays on hold because the earnings of these stories and the rise of their stocks, the real powers underneath a rising market, just don't bother anyone. Only the software as a service earnings rise to bubble language. The rest just have steadily rising price-to-earnings multiples to meet steadily rising earnings per share and revenues.
What's behind these moves? How can they possibly be explained? I think it is a very rare confluence, a bit of a total eclipse of a bearish sun. I have no idea how long it will last, but at least let's acknowledge it's going on. I will break each sector down because it isn't low interest rates that are really propelling these stocks -- although that always has a hand. It's something different in each sector even as we've been told, Tolstoy-like, that all happy family sectors are the same, just along for a higher S&P ride.
First, the big capitalization stocks, like 3M and the Honeywell and the like, are going higher because of a belief that the dollar has topped and the bogey created by the last earnings report will already be exceeded on the weaker dollar alone. Second, these are companies that benefit from a worldwide return to growth, ex-China, kind of the polar opposite of what we have seen in the last few years.
The U.S. has been strong for about five months, largely because of lower oil and low interest rates as well as the newfound strength in the non-residential construction sector, as well as steady orders in aerospace. Lately, though, it's the once-moribund European continent that is giving these companies a boost. Not many are talking about it yet. It's only the outliers like consumer spend companies like Cisco, V.F. Corp (VFC), Skechers (SKX) and Columbia Sportswear (COLM), but I bet we are going to see it in autos -- registrations are up -- and, soon, construction.
I know, pretty disparate. But those are all noticeable for one particular reason: they report late in the earnings cycle. I believe we would hear it now from all of the big multinationals and they would pin it on easy money and lower energy costs. We are also seeing a return to growth in India, which is by government initiative. And, get this, Latin America away from Brazil is starting to turn up. Soon we will hear that auto sales, a huge piece of the puzzle, are definitively getting better in Latin America and Europe.
We are so used to the locomotive being China. I would bet on Japan before China now, as the Asian power that joins suit. That total net importer of energy and serial debaser of the yen is the repository of a bunch of auto and consumer products companies -- think Toyota and Sony -- that are really starting to kick some butt, albeit quietly as their stocks have long been given up on by all but the most diehard of hedge fund managers.
Go listen to what Boeing had to say yesterday, about robust orders globally coupled with better defense spending, and you can tell that something big is happening.
The turn in tech has to do with the next level of digitization. We are seeing an explosion in data and data management and it's all because of a new round of information technology spending required to meet data demand. Now, this is a hotbed of hatred by those who see bubbles and parallels to the tech peak in 2000, and I can't fight that other than to say that the social, mobile, cloud and connectivity are real trends and these companies are surfing those waves. What can you do? At least the semis are at historic p-e lows versus earnings and you aren't paying much for Oracle, Cisco or Apple. That matters, even as salesforce, Workday, Tableau and Red Hat are expensive. However, they have always been expensive. Digitization knows no borders. You heard John Chambers on Mad Money talking about Germany and France spending to digitize. These growth green shoots are undeniable, even if they are secular, not cyclical in trend. Does Dominion not tell the truth in the surge in power usage from data centers? It knows more than the rest; it has the lowest power costs in the country.
Retail and restaurants? Those are just discretionary spending plays. So few of these companies are willing flat out to say "look, we are getting a share of the $1000 in discretionary spending per household that lower gasoline prices are giving us." Notice this doesn't extend to Tiffany (TIF) or Ralph Lauren (RL). The additional savings don't matter; these are middle class spenders. It's been so long since we've seen spending from these people, that we simply don't believe it. We should. It's surprising, for certain, as anyone listening to the incredible Jack in the Box conference call can tell you, as management expressed shock yesterday about 10% comps. Welcome to the world of tax cuts, the cuts of the oil tax on the American people.
Travel's the same. These stocks were shorted because of a belief first, that Ebola was everywhere, and then that the strong dollar was crimping their earnings, as we weren't getting foreigners to shop or travel here. It's obvious that's a drop in the bucket. Americans are traveling. We are a big country. We are so conditioned to think that all growth, in the end, comes from China, that we are suspicious of any homegrown spurts in spending. Sorry, it's for real. Oil's low. These companies are going higher on it. The move in the airlines today, off of a Merrill upgrade, is part and parcel of this positive trend.
The health care providers and cost containers? They wrote the Affordable Care Act. So they are reaping the benefits or bonanza of their brilliant corporate lobbying.
I think what's throwing people off is that these groups typically haven't gone up together. They have been zero sum. Then again, when have we ever had a confluence of rapid commodity declines -- soon to extend to foodstuffs by the way --, higher spending on health care and a return to global growth ex-China occurring all at once? It's unheard of, and it's unheralded but it is behind these multi-sector moves.
Of course, these come at the expense of the oils and natural resource stocks. The 13% is taking a beating. They come at the expense of the upward momentum of consumer packaged goods stocks, most of which are too challenged secularly by natural and organic trends, but will benefit from a trickle-down of raw packaging costs later in the year. They are beneficiaries of the money flowing out of utilities and the lack of money into financials because of the yield curve.
All of these flows of funds are highly unusual, too, as those areas had been steady accumulators of capital for the last two years.
In sum, we are all thrown off. We can't grasp the magnitude of these moves or where they are coming from. I hope this piece helps in explaining how real they are and how long-lasting they can be as we go against easier comparisons as 2015 rolls on.
