The charts speak with forked tongue. That's not something we want to see on the eve of a Federal Reserve meeting -- with a press conference no less, the first press conference for new Fed chair Jerome Powell, who will have to establish a tone that's both respectful and forceful.
What's so troubling about the charts? Let's start with the banks. This group is soaring -- hardly down on bad days and nicely up on good ones. Doesn't matter whether you're a national bank like Bank of America (BAC) or a local bank like Cullen/Frost (CFR) or First Horizon (FHN) your stock is just on fire.
Some of these banks look like techs of old -- positively FANG-like. We're used to seeing the financial techs trade in unison; will anything ever stop Mastercard (MA) or Visa (V) or Global Payments (GPN) ? Or the brokers now that rates are going up?
Only Wells Fargo (WFC) is defying charts that would indicate that we should get ready for four 2018 Fed rate hikes. I was asked what to do with Wells Fargo the other day, and basically whether it's come down enough.
I have to say that given the "ETF-ization" of this group, I can only imagine how strong the selling pressure on WFC is. It's endless, and it makes me wonder whether the move in banks is being augmented by deregulation and a lack of cases being brought against any bank except for Wells Fargo. Hmm ... higher rates, lower regulation or both?
But then you look at the utilities and the real estate investment trusts and you know what you see? A bottom, plain and simple.
Almost every one of these stocks had turned up, led by the likes of Digital Realty (DLR) or CoreSite Realty (COR) (i.e., the ones linked to the data center). But this past week saw office REITs turn around, and I could say the same for select retail REITs.
I see the same thing happening with the conventional utilities as well. You're getting that turn that you have after a gigantic sell-off -- that base that says a 3.5%-4% yield is enough to attract buyers. Look at ConEdison (ED) if you doubt me. That stock had been in freefall, but no more.
But wait a second, how about the consumer-product-group stories? Look at Kimberly Clark (KMB) , Procter & Gamble (PG) and Clorox (CLX) . They say that a 3% dividend yield isn't enough to compensate you for the risk, because rates are going right back up.
These stocks are way too powerful on the downside for it to just be a case of weakness in the business (which isn't actually all that bad). After meeting with Clorox CEO Benno Dorer last week, I'd like to say: "Just buy it," but this group's recent moves lower have just been too ugly.
Of course, it's not as ugly as that of the homebuilders, which are signaling a straight shot to a 3% 10-year U.S. Treasury yield this week. But then again, it's been a weak spring for homebuilder stocks, and if rates were on the cusp of a big move higher, you would see the opposite.
Once again, I can craft a secular thesis here -- the end of increasing homes values for states with high taxes (which happen to be the states that voted for Hillary Clinton for president in 2016). Those markets are looking frozen, which is something that happens right before a big breakdown in values.
But if rates are going to shoot up, why the heck are all of these medical-supply and hospital-chain stocks doing so well? Why do I see such strength in HCA Healthcare (HCA) , Tenet (THC) , Stryker (SYK) and Abbott Laboratories (ABT) ? Once again, it makes no sense. These are "slowdown stocks" at a time when rates are saying the opposite.
So what's my conclusion? Pretty simple: We've got a battle ahead of us, but it looks like it will be resolved, perhaps as soon as Wednesday's press conference by the Fed's Powell. Let's just hope it isn't resolved violently, which has become the way of 2018.
