What has to happen to get us back on track? What's the playbook for a return to the upside?
You've come to the right place.
Before I give you the machete this market needs to find a path for the bull let me just say that it's going to be easy. We're in maximum controversy role, where we need to understand that the thicket's filled with elephant grass, mosquitoes and triple canopy cover making it impossible to just blast the bears from the air. The difficulties to going higher are legion. But that doesn't keep us from ramping.
First, Jay Powell has to blow us away with his statement and his press conference. Believe it or not, this is the easiest part of the thicket. A lot of people are acting as if we are staring down a claymore mine. Not true. Jay's seasoned. Jay has thought about what needs to be said. Jay has been practicing for this role his whole life.
What does he need to say?
First, that the economy is strong, not too strong, but one that can create a lot of jobs. He has to stress how great the job creation is and how there's a lot more down the pike.
He has to dodge any questions about Trump other than to say the corporate tax package has spurred good growth. Getting how many times he has to say growth?
Then he has to defend the rate hike. He can say that he sees incipient inflation, not a lot but enough to remind us that we have to get back to where we used to be, a reasonable funds rate that's meant for a growing economy, one of the strongest in the world. But we don't want overheating.
Now this is really important. He must, must, must talk about how Amazon (AMZN) and the new digitized economy is a real break to the inflation we would have expected by now. There are low prices because of competition. Autos are coming down in price. Housing is cooling, which is good. The real inflation other than mandated by minimal wages is short-term, higher plastics prices because so many factories went down after the storms and drivers, which is a real issue, but a high quality issue because it is good that we have some places where relatively unskilled workers can get jobs.
In other words he can justify the hike as preemptive to inflation that can come with the kind of growth we have. Then he has to talk about the next rate hikes and he has to do them in a way that explains that he, like his predecessor is data dependent even as he wants to normalize rates by taking them higher. He can't be tone deaf to lock step rate hikes while at the same time if he wants to he can commit to three.
That's all he has to do. If we get this, if he follows my script - and I think he will - then the banks and the tech and the health cares can all rally. I think the afternoon rally today is about the script and how it can go very well indeed. Notice the non-social media techs today. They are so strong.
Which brings me to number two, the cloud kings have to roar. Last night Oracle (ORCL) announced what some analysts definitively called a slowdown. It's amazing that the market's reaction was not to think that Oracle's cloud slowdown infected the group, but the opposite. Workday (WDAY) , Salesforce (CRM) , Service Now (NOW) , Splunk (SPLK) , Red Hat (RHT) , VMWare (VMW) , and Adobe (ADBE) roared higher, with the later seemingly in an uncontrollable romp. Not only that but there were plenty of rumors that Salesforce might buy MuleSoft (MULE) to take on enterprise software, where Oracle is especially strong. Keep an eye on Nutanix (NTNX) , it's a high prince itching to be crowned a cloud king. Stranger things have happened. Memo to those who thought Nvidia (NVDA) was rolling over? Neither the dog nor the stock's playing dead. Intel (INTC) continues its upward charge.
Third, we need to see the EC pledge to look into taxes on U.S. companies like Amazon and Alphabet's (GOOGL) Google that do business in Europe. We need to hear that the taxes could be as high as 2%, no higher, or that will jeopardize the nascent move in Amazon and will continue to roll back the price of Alphabet.
Fourth, we need to hear a bunch of things from the President. First he has to say that before he puts any more tariffs on China he needs to sit down, eye to eye and see if he can make a deal. He used a meat axe on aluminum and steel. Now it is time for a stiletto, not just sixty billion in tariffs. That's got to be an opening bid.
Fifth, the President needs to put Larry Kudlow out there to say we have to have a growth agenda in our country, that he is pro-growth including job growth. To these ends as much as there is a tariff on our cars sold there that's literally four times what we place on them, 10% versus 2.5%. We are reasonable people and we won't immediately reciprocate with 10% if they commit to start building more factories in the United States. Yes, we will raise our tariff to theirs but we will make carve outs for commitments. Let Larry make the point. The President doesn't need to be the heavy unless we don't get commitments. We are not going to get more U.S. cars sold with those tariffs. You get at a one-two cessation for the moment of tariffs in favor of jobs built here, you get a roaring industrial continued. They are always threatening to break out but they haven't been able to because of the tariffs.
Sixth, we need the rally in the retailers to keep going higher. I particularly like the action in a couple of mall based companies like Abercrombie & Fitch (ANF) , American Eagle Outfitters (AEO) and Urban Outfitters (URBN) . Kohl's (KSS) is climbing all the way back. Nordstrom (JWN) , Gap (GPS) and Macy's (M) were horses into yesterday's downturn. And how about those suppliers: VF Corp (VFC) and (PVH) won't quit. (KORS) took a breather but it's back on track today. Estee Lauder (EL) hit an all time high. How fabulous is that Fabrizio Freda, selling products that enable us to look our selfie best.
No one is following this rally except for me because no believes there is any life in the mall or strip mall. The fact that the group ignored the relatively tepid forecast from Children's Place (PLCE) is a terrific tell.
Seventh, we need Facebook's (FB) top brass go come out and issue a ton of mea culpas. If they do, the stock stops going down as we begin to assess it as a 17 times 2019 earnings and a 40% grower. Remember I said yesterday it's the fundamentals versus who cares about the fundamentals. I know how to change the narrative and rather than spending tens of millions of dollars on consultants and damage control people, they can just do what I say.
Eighth, we need some recent roadkill to stop going down. General Electric (GE) has to sell a division to Emerson Electric (EMR) . Broadcom (AVGO) has to announce a gigantic buyback. And Apple (AAPL) has to go back to its all-time high given that nothing is wrong with it other than it's caught up with the consumer product stocks, not the techies.
Yep, it's a true thicket. One that we have about 24 hours to fight through. Machetes at the ready, the path traced out, the extrication point can be reached, the LZ's hot but it's a terrific place to lift off from.