What do the bulls want? Sometimes that's the question to ask on a day like today because you can read the market like a map to tell you.
So let me put my cartographer's hat on and explain the map that this market used to please the bulls and go higher.
First, before we even got up, we got some news from overseas that pointed us in a path that could take us higher.
You can always tell, by the way, that it's news from overseas that drives things because if you go to bed at 11 p.m. ET when the S&P futures aren't doing much at all and you wake up at 3:30 a.m. and they are flying, that's a sign that somewhere, someplace, we got good news that lasts.
Here we got two good pieces of news from the same place. First, we got word that the Chinese economy is even worse than we thought, with manufacturing matching the lowest level in seven years, which, not coincidentally, is when the Chinese really got serious about moving their economy forward. The governing council of China, its parliament, meets Saturday and you know the stars may be aligned for the biggest stimulus package yet. "OK, so what," you say, but remember, there are always people out there who believe China can turn. Hope always springs eternal. Who knows? It sure turned the stock market around, which went from the red to the black as the session proceeded.
Far more important, we got a shockingly dovish speech from Bill Dudley, the New York Fed president, who had been instrumental in a recent selloff by simply denying that anything had gotten weaker since the December rate hike. Back in January, Dudley set off a firestorm when he said it was all systems go for more rate hikes because everything seemed to be hunky-dory since the last one.
That's been his party line since then.
Until last night, when he gave a speech in China saying, and I quote, "On balance, I am somewhat less confident than I was before" about the economy. Further, he said, "partly this reflects my assessment that uncertainty to the outlook has increased and downside risks have crept up."
Now it gets even better for the bulls as Dudley says, "At this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt to the downside. The recent tightening of financial markets could have a greater negative on the U.S. economy should this tightening prove persistent."
All I can say, if you are a bull, is hallelujah. I cannot stress how important this speech was. First, you have the leading hawk out there saying that maybe he was too bullish and he has to adjust course for the new, more negative reality
That's so at odds with his previous statements that it is almost a surety, when tied in with the comments from former hawk James Bullard from the St. Louis Fed, that there will be no rate hike this month.
It's also very significant that the comments come on the eve of the employment numbers release on Friday. The presumption -- right or wrong -- that Dudley knows it's a not-so-hot report permeated the talk of today and that really boosted stocks from the get-go.
But you know what else has happened? If you go back two weeks ago, yes, two short weeks ago, you had this monumental flight to quality with money pouring out of all sorts of risky assets including emerging market bonds and high yield or junk debt here. In the last few weeks, though, the flows have reversed, putting an end to the flight-to-quality trade.
How can that be?
That's simple: If you think China's falling apart and the United States is slowing while the Fed is about to tighten, you have a nightmare scenario of policymakers on the wrong side of every common-sensical view.
But if you have the biggest hawks on the Fed recognizing that there are some perilous issues and you have the Chinese recognizing that they have a real chance to do something big, you are far more likely to want to sell Treasuries and get more positive.
There's only one more issue, though. How do you get positive if things are really bad in this country? How can you thread the needle? First, you need some positive data to come out. Voila, we got an important manufacturing number from our country that was stronger than expected, and then we got a small-business survey from Paychex (PAYX) that showed a nice improvement in hiring.
Then, on top of that we got some excellent numbers from Ford (F) showing a solid gain in sales, just strong enough to call into question the notion that we are reaching peak auto sales in this country. Now, it is true that GM's (GM) disappointed, but remember, the bulls want to thread the needle, which means you need to see some strength but not so much strength that newfound hawk Dudley will have to backtrack. We don't want a recession, we just want decent enough growth to put the Fed on hold while we sort through the data. (Ford is part of TheStreet's Dividend Stock Advisor portfolio.)
All of these bits of news come with a catch, though. How about oil? Will oil behave, meaning will it go higher? We know that if oil doesn't go higher, the oil companies won't be able to sell equity and they will default to the banks, which is the big bear saga that took the market by storm two weeks ago.
Sure enough, oil is going higher. You want a microcosm of what that means to the patch and the banks? OK, one of the larger and, candidly, more troubled large oil companies is Marathon (MRO). Many had speculated that it would join the ranks of the dead men drilling and take down the banks that have lent it money, too.
But last night Marathon filed to sell 135 million shares in order to ensure there would be no balance-sheet problems. It joined the rank of Devon (DVN), Pioneer (PXD), Hess (HES) and Newfield (NFX) in offering equity to raise cash to please the creditors. Perhaps because all of those other deals worked so well for investors, this Marathon deal was oversubscribed and the company ended up offering 145 million shares at $7.65 a share. That's 10 million more than they thought they could do. The offering was priced perfectly and Marathon suddenly went from a not-so-hot credit to a good one.
It's a reminder that what matters to this market is that oil stays high enough that all of the sizable strapped oil companies can raise equity, so the banks that have been taking it on the chin from oil worries are off the hook.
Both the oils and the banks went higher on the news. Further, because of the better economic data, interest rates rose, which means the banks have some hope that they could make more money with your money. Again, a win.
Then there's Workday (WDAY). When we did our interview with Workday CEO Aneel Bhusri, the stock was going lower on that by rote, selling on some missed guidance number. But we correctly sussed out that the quarter was sharply better than expected and that Workday's back taking share with its cloud-based offerings from human capital and finance. I hit it again hard this morning on my Mad Dash after going through the conference call.
When you see Workday rally, that encourages a lot of buyers who have been anxious to take down some tech stocks, including Broadcom (BRCM), which reports this week, and, of course, the usual members of FANG, which tend to go higher whenever a high-growth company like Workday beats and raises.
Finally, let's remember that technically this market was ready to take off, as we heard from our own Carolyn Boroden, who nailed the top and bottom of the last S&P cycle and said today's a crucial day that could determine whether we break out of the range.
That technical look added fuel to the fire.
So, it pretty much all came together in a single session as we shrugged off yesterday's ugliness and produced a super-strong day that surprised all but those who follow the narrative that it takes to get a rally going in the year 2016.