Overdone? Too tied to Washington? Too grim?
We do seem to be back in the old paradigm of gridlock coupled with slow growth and cynicism, all of which combine to produce subdued markets.
I have been adamant that this rally hasn't been just about the power of Donald J. Trump to effect change in Washington. I think the optimism the president has created in the business world through his endless pro-jobs drumbeat has been far more important for stocks than anything coming out of his attempts to work with Congress to change health care and taxes.
The positive implications of deregulation coupled with better-than-expected profits have, in my opinion, been the impetus for the run.
All that said, I totally recognize that my view is distinctly in the minority. Maybe on days like yesterday and this afternoon, a minority of one.
So let's go over the narrative that's in control right now, the narrative of selling that produced yesterday's bleak session, the worst day for the market this year, the story of why stocks got crushed and today have experienced only a meager bounce back.
First, there's an incredible tug of war that goes on most sessions between how actual companies are doing and what the broader indicators say about how companies should be doing.
I follow the fortunes of companies. The vast majority of those that have reported in the last few weeks are saying their businesses are strong and getting stronger. We've had so many executives on Mad Money proclaiming how a better environment has produced better order books, better profits, more hiring and raised forecasts.
The positives are so pronounced that the stocks connected with them bounce back on a more calm day, even though the day was marred by a terrorist incident outside of Parliament in London.
The stocks, for example, that are bouncing today tend to be the ones that reported some of the strongest quarters that have nothing to do with Washington but have a lot to do with non-cyclical growth. So Adobe (ADBE) , which reported a monster quarter, can avoid the tug of Washington gloom. Apple (AAPL) , which has the huge cycle ahead after already reporting a terrific number and gotten Warren Buffett's endorsement, can overpower the arc of pessimism. Amazon (AMZN) can burst out in part because the CEO of Federal Express (FDX) last night talked about how the strength of e-commerce is propelling earnings higher. (Amazon is part of TheStreet's Growth Seeker portfolio.)
These stocks represent companies involved in the real economy and they are doing too well to be derailed by the larger headlines and the morass in the capital. They matter even on days like today if you want to try to make money in this market for more than just a couple of days' time.
But these kinds of moves are now distinctly one-off versus the broader tale of the tape. So let's explain what's really in charge and what makes these positives simple outliers, islands in the storm of the foibles of the new political dynamic.
First, the market is entirely a referendum on Trump's successes or failures. Remember, this is not my narrative, it is the narrative that controls the collective thinking that's the force, short term, behind stock moves.
How do we gauge Trump's successes or failures? Do we look at polls to find out what people think about him? Do we consider what he's accomplished when it comes to creating jobs or deregulating industries? Do we grade his presidency by the news stories that surround how he is doing?
No. In fact, those stories about how companies are actually doing mean nothing to the market whatsoever, especially the last one where almost every major news outlet, rightly or wrongly, pronounces this regime as dead pretty much daily. This guy's good for a couple of failed presidency articles a day.
What matters more than anything else is the bond market. When interest rates go higher, that means Trump is going to get his way to expand the economy through tax breaks that he's convinced Congress to go along with. When interest rates to go lower, that means Trump's not going to get his way and his political clout is nil.
The potential inability of Trump to get rid of Obamacare and replace it with something more to his liking has become a bond-rally-triggering event because it's something that delays or derails the pro-business agenda.
The potential for high-ranking associates or former associates to be indicted at the suggestion of FBI Director James Comey is also a bond-rally-triggering event.
And when interest rates go really low, such as 2.4% on the 10-year, which is where they went after the health care stalemate and Comey's comments, that means all the goodies like repatriation of overseas assets, infrastructure build and lower corporate taxes simply aren't happening at all. Or at least not any time soon.
The impact is swift. The leaders of the rally, the financials, get crushed. They are so visible that they are like a red flag flashed by a bullfighter to entice the bull into his denouement.
I have said it before and I will say it again: You can't have a continuation of this rally if you lose the banks. It is perfectly fine if the stocks rest. It is not fine if they go down 5% to 6%.
The industrials also take it on the chin. Now, it doesn't matter if the stocks of the industrials have rallied after they reported good numbers or gave you excellent news. Those increases get repealed when Trump seems weak. That's because the people who haven't done the homework, the people who think this market lives or dies by how many congressional votes Trump gets, have to sell stocks. They aren't going to let the corporate facts get in the way of the negative bond story.
Plus, it has gotten worse. Now the transports, which had taken up the mantle of the rally after the industrials and the banks stalled, have started rolling over. Why not? Interest rates go lower because Trump is failing. If Trump is failing, then there will be less commerce. If there is less commerce, then the stocks of the rails and, more important, the airlines go down. How can we be so sure?
OK, are you sitting down? We know the airlines should go down because not only is the bond market telling us the economy is slowing but something else is happening: Oil is breaking down, which confirms the bond market's severe judgment.
That's right, something that's actually great for the airlines' profits, lower oil prices, their principal expense, is less important as a cost control than it is as a barometer of overall business and how it might impact airlines.
So let's go over this absurd arc not so you can make sense of it, because it makes no sense, but because while it makes no sense, it is what's driving the market.
A weakened president means lower interest rates and lower oil prices, which is therefore bad for stocks.
Now, in the interests of history, I just want to say lower rates and lower oil have been responsible for many of the greatest advances we have ever seen.
Not now, though. Now we are all about Trump and nothing else. It doesn't matter if FedEx says business is excellent and getting better. The president is weak. It doesn't matter that tech company after tech company, like Adobe and Salesforce (CRM) and Accenture (ACN) and Oracle (ORCL) , have reported excellent earnings. The president is hobbled. It doesn't matter that Starbucks SBUX is predicting an acceleration in same-store sales or that PVH (PVH) beats the numbers, the president is in trouble. (Adobe, Apple and Starbucks are part of TheStreet's Action Alerts PLUS portfolio.)
And on and on and on.
So what do we do? I think if you want to make money, you do the opposite of what the market says to do. I think you buy stocks of companies that are doing well betting that Trump's daily vicissitudes are not truly the judge of what will create shareholder wealth.
But remember, to figure out what companies are doing well requires actual boring work, sometimes as much as hours and hours of work to figure out how a company's really doing. It's far easier to recite the litany of presidential weakness, interest rate weakness, oil weakness equals sell.
At least now you know the fever gripping the market even as it hasn't infected the actual fortunes of individual companies, which, in the end, determine the longer-term wealth creation that's not dictated by the litany that seems to be in charge of the market at this very moment.