Machinery. Pharmaceuticals. Insurance. Aerospace. Consumer packaged goods. Health care. Medical devices. Homebuilders. Auto parts. Airlines. Semiconductors. Internet. Rails. Health insurers. Defense companies. Media. Regional banks. National banks. Real estate. Utilities. International industrials. Computer equipment.
I know it seems almost inconceivable, but when I looked at the charts this weekend, I saw endless numbers of stocks from all of these groups sitting at or nearing all-time highs.
I usually like to write down the names of the stocks to be sure what's going on with each. But there were so many of them that after a while the lists were so long that it seemed almost meaningless.
Except it's not.
It's the strangest thing. It's almost as if there is so much money coming into this market that it doesn't matter. As long as it isn't in retail, restaurants or oil and gas, there's money being thrown at it. And if you defy it, if you actually don't try to buy the stocks that have been going up in a straight line, you have been hurt.
What's going on to make so many stock groups work, clearly something worth pondering after 11 straight new highs for the Dow Jones Average?
I think there's a highly unusual confluence where some managers are taking their cue from the bond market -- which, with the yield plummet from 2.5% to 2.3% in just two weeks' time, is signaling slower growth and less inflation -- and they are buying all the defensive stocks, while others are taking their signals from improving international growth, which isn't showing up in our bond market. Still others are betting on specific Trump themes that still have legs. And others are buying stocks that seem to have a pretty good chance of being taken over.
If you didn't know any better, you are seeing still one more bout of hedge fund managers shorting low and covering high in addition to new money coming into the market because interest rates again are too low to be serious competition.
Just take a few examples. Let's start with big pharma because it's a bit of the classic case of everything going right after everything going wrong.
Four months ago, big pharma was being attacked by both presidential candidates. These stocks were some of the ugliest out there. The only debate was how low could they go? Political headline risk, rising interest rates, failed drug trials -- remember the Bristol-Myers (BMY) breakdown? -- and no new blockbuster drugs, while it seemed like they would have to roll back price increases in order to please the politicians.
Now look at them. First, interest rates have dropped sharply, perhaps because money came here from other countries, particularly Germany, where rates have been crushed, or perhaps because there's an overriding sense now that Trump won't be able to bust the budget because Congress is too busy doing nothing. So you got the bond market-equivalent buyers coming back in.
Second, the drug companies voluntarily began to rein in their price increases, causing the political heat to go away. Trump was not going to start attacking them after they all pledged to keep price increases lower. He won.
Third, takeovers started again. Johnson & Johnson (JNJ) bought Actelion for $30 billion, which was a huge purchase for this conservative company. We know Sanofi (SNY) is looking for a partner. Novartis (NVS) might be, too. Same with GlaxoSmithKline (GSK) Perhaps AstraZeneca (AZN) (see charts for these four below).
In all of this mix, Carl Icahn comes in and buys a big stake in Bristol-Myers and says it is a takeout candidate.
You go from having a group that is hated to a group that is loved in the blink of an eye, which is always the hallmark of vicious rotation that has caught a lot of big money leaning the wrong way, both on the underweighted and the short side.
Here's what didn't happen, though. When you see all the money go to one portion of health care, it usually comes out of the hide of another portion because there isn't enough money sloshing around to keep everything up. So you would have expected the device companies would have lost their luster. But there's Baxter (BAX) , Bard (BCR) and Becton Dickinson (BDX) soaring. Stryker (SYK) , Intuitive Surgical (ISRG) are rallying. Abbott (ABT) and Medtronic (MDT) keep going higher. Now the biotechs are joining the breakouts with Celgene (CELG) leading the way, followed by Biogen (BIIB) , Incyte (INCY) and Regeneron (REGN) . There's more than enough money to go around. The health care insurers should have lost luster but they gained it because they are perceived as big winners in a Trump world.
It's incredible to see those kinds of moves and how they didn't detract from each other. For once, an in-sector rotation was not zero-sum.
Or take the housing stocks. Here's a group that was given up for dead as interest rates kept going higher. It didn't matter what the companies said about demand. You knew you had to sell these stocks because even though a quarter of a point is only $40 more a month, when you get rate hikes you have to dump these stocks. That's the playbook.
But then long-term rates go down and the Fed says it's going to tighten but in a reasonable fashion, seemingly keeping housing alive. So suddenly still one more good quarter from Toll Brothers (TOL) is actually greeted with a breakout, even as I could argue it wasn't as good as the previous one. KB Homes (KBH) , so hated by all the housing analysts, doesn't stop going higher. Why should it? The company has a ton of California land. Lennar (LEN) at last looks strong enough to take on the bears.
When rates were going higher, it looked to be the end of Stanley Black & Decker (SWK) and Sherwin-Williams (SHW) . Wrong. They all reported better-than-expected earnings and then Home Depot (HD) sealed the coffin on the bears by reporting the best retail number of the period. So the home stocks all went from being pariahs to being among the best in the show.
In my next post, we'll look at the impact on the airline and aerospace industries.
