Sometimes things just work out. Today we saw the right stocks rally and it was rather incredible even if you didn't necessarily see it in the averages.
But it happened, and rather than just say this group or that group rallied like I am some sort of sector ETF reader, let me tell you what the bulls should want and what the market gave them.
First, we've been desperate for mergers. We've had this one drawn out battle between Broadcom (AVGO) and Qualcomm (QCOM) , a $110 billion attempt by Broadcom to own the biggest cellphone intellectual property company in the world and that's pretty much it. The battle's become a Claymation death match that drags on and on.
Today though, we got a $67 billion dollar deal, health insurer Cigna (CI) to buy pharmacy benefits manager Express Scripts (ESRX) and it ignited the whole health care sector. Cigna, which is using cash and stock, saw its own stock obliterated as either the sellers thought that it paid too much or that Express Scripts isn't going to make them all that money -- something that Cigna in an interview with us on Squawk on the Street vociferously disagrees with. I say it's good for Cigna and the stock's a buy. More important I say it is good for the stock market because the analysts who cover the business had a very low opinion of Express Scripts because it lost one of its key clients - Anthem (ANTM) , which represented about thirty percent of its business -- yet one of the best run companies in the business decided it was worth a great deal. In other words Wall Street may think that Express Scripts was overvalued but Cigna thought it was undervalued and I will take Cigna's judgment over Wall Street's any day of the week. So, first thing that made me feel that the market may have an important underpinning, a bona fide big takeover by a real company, happened regardless of chief economic adviser Gary Cohn's exit or tariffs or even the 10-year treasury interest ratespiking to 3%, something that could happen as soon as tomorrow if we get a red-hot employment number.
Second bit of manna: the drug stocks rallied. Boy oh boy has this group been horrendous and that's a not good given that the sector's big, important and a source of comfort for many. The best part of the surge? It was led by Johnson & Johnson (JNJ) which has been an amazing laggard, amazing because it is one of the best there is. Alex Gorsky, the CEO, is the steward of this fabulous American company and had the company, one with the best balance sheet in the world, firing on all cylinders. I have to admit that it is unnerving to me that it sells at only 16 times next year's earnings estimates despite its 2.5% yield, its big overseas business that benefits from a weaker dollar, and its fantastic pipeline of new drugs. If JNJ's cheap, then something's wrong with the market. It should be expensive given its high quality.
JNJ's leadership ignited the entire group and made me feel that we haven't lost one of our best industries perhaps because of upcoming government price regulation or because of a more inflationary environment that doesn't support a group that historically done poorly in times of price hikes that bode poorly for purchasing power. Yes, this sector is real vulnerable to a big number tomorrow but, in some ways, that makes it even more remarkable that buyers would take that kind of risk ahead of what could truly be bad news for big pharma.
You know what else pleased me? The best of the best consumer packaged goods stocks managed to catch bids. I can't recall last when that happened. How terrific was it to see Pepsico's (PEP) shareholders at last be rewarded for that amazing quarter.
Then how about those industrials. We've been fretting about their prospects ever since we've been hit with the tariffs, 10% on aluminum and 25% on steel, because they are naturals for retaliation. But the moves in such excellent companies as Parker Hannifin (PH) and, Illinois Tool Works (ITW) can presage a return to the sector that had been most loved before the president issued his protectionist salvo.
I liked the run in the casinos, particularly MGM (MGM) and Wynn (WYNN) in part because it's about the fundamentals: Macau was incredibly strong year over year which bodes well for Chinese spending, but also because I think that Wynn might be bought by another casino company now that Steve Wynn has stepped down from his operating role. The company's worth a great deal, but it has lots of troubles because of Mr. Wynn's outside-the casino behavior. We get a takeover here and I would feel almost as positive as I do about the Cigna-Express Scripts deal.
Talk about manna, we got a rally in the airlines, something that hasn't happened in ages. What ignited it? Don't look at the weather, it's causing flights to be cancelled left and right.
It was about Southwest Airlines (LUV) which showed traffic for February up 3.5% but capacity up 1%. Any time we see the potential for a boost in revenue beyond what we expected and not a lot of new planes competing against each other as indicated by that low capacity figure, that's excellent news. The transports are vital to indicators of commerce. And with housing and autos acting punk it's a good sign to have this group roaring, especially when we know that the storms have cut back on flights. I am partial to Southwest but the whole cohort has gotten very very cheap. Not that long ago none other than Warren Buffett endorsed the group -- even talking about owning one. Can you beat that?
Of course not everything held up. After having a spectacular morning, the tech stocks pretty much rolled over really with the exception of Apple AAPL which had been the exception yesterday meaning it was going down.
Now we can't always judge a market by the tally of the averages. I like to judge it by the breadth. The last few weeks we needed Listerine and Scope by the barrel.
Today?
Today we got some new winners when we sorely needed them. No not enough to carry the day. But yes, enough to give those of us who felt the rally was too narrow some welcome relief for a pivotal session.
