The stock market in 2018 has been so darned hard that we often have to marvel that it can go up at all. Then you get days like today and you suddenly think, you know what, when you get a confluence of good events the bulls can really put on a show.
It's not easy to put something together like today but let me walk you through what happened to allow there to be a rally in the first place.
First, in what may be a prelude to the meat of earnings season we got three terrific and meaningful reports. Remember I told you earnings will matter, and they sure mattered today.
For example, BlackRock (BLK) , the asset manager, reported an extraordinarily strong earnings report, perhaps foreshadowing tomorrow's parade of bank earnings. I loved the conference call because it cited all of the negatives that befell the quarter-escalating trade tensions, inflationary concerns, flattening yield curve and market volatility, and yet it still made a killing. The call gave lots of people the conviction to buy banks ahead of their earnings reports.
Then we got a positive number from Delta Airlines (DAL) . Again, the company had a huge headwind, oil prices that jumped 20%, their principal cost. And yet it didn't matter because the company had higher average fares and more traffic. Plus it was optimistic about the future given the corporate tax cuts. The market often lives and dies by the transports and you can't have a better signal of health than from Delta. Travel, both business and personal, is strong, signaling robust corporate and discretionary travel spending.
Then early this morning Costco (COST) reported its monthly numbers, and they were insanely stellar, 6.7% ex gasoline when Wall Street was only looking for 4.6%. Talk about a sign of American health, Costco is one of the largest retailers in the country. We have been worried about retail sales because macro numbers we get from the government showed punk sales. I would rather trust Costco's numbers as a barometer. It couldn't have come at a better time because the night before Bed Bath & Beyond (BBBY) reported a decent earnings that was dramatically below what anyone expected. I know they have a lot of irons in the fire to change their formats but they are being crushed by Amazon (AMZN) - I just can't find much at my Bed Bath that I can't buy on Amazon and have delivered to my house.
What would make me want to go to Bed Bath and do some buying. One instance: if they don't catch the thief who keeps stealing all of my Amazon boxes left at my doorstep when I am at work. I am hopping mad, just livid about this: three days of stealing. If this keeps up for another month I am going back to Bed Bath for some of the things I now buy from Amazon Prime.
Second positive confluence? The price of oil finally went down for a minute. In the last few days we have had the worst leadership imaginable: the oils. They have been the hottest stocks and they are strictly zero sum, meaning that when they go up everything else goes down. Now there can be other times when we actually want to see oil go higher, deflationary times where we have no growth or the economy is shrinking. But right now we have the opposite: we have a Fed that is tightening and the last thing anyone wants to see is that they are tightening because we have cost push inflation, done in by commodities. I have watched Chevron (CVX) and Exxon (XOM) and Occidental (OXY) and Halliburton (HAL) soar - yep oil service too, and I have been lamenting about whether they will ever quit. At last they did and the market was able to catch its breath.
I don't want to call this move dead. The stock market was incredibly strong today at once point and it hit a retaining wall when MSNBC reported that the deaths in Syria were indeed caused by gas attacks. That means it is likely that the U.S. government will retaliate and anything that could cause tension in the Middle East, even if it is isn't involving a major petroleum state, can cause the stock market to give back its gains.
Third positive force? Instead of oil leadership we welcomed back some leaders that had been taking a breather for what seems like ages, when it really wasn't that long at all. I am talking about tech. With Mark Zuckerberg no longer on the hot seat at Capitol Hill, buyers returned to the semiconductors, to the cloud kings, software and even social media. I think that there had been a concern that Congress was about to go after the big tech companies because they were too powerful. After today, a day when the stock of Facebook (FB) was down, I think buyers said whatever problems that Facebook had are going to stay with Facebook.
I also watch certain semiconductor companies like a hawk and the ones that moved were incredibly encouraging. First Micron (MU) , a basic building block semi, had its first really good day since it reported what looked to be a blockbuster number but has led to a sickening slide after fears that it can't get any better than it is. That means more supply and less demand. Today's action put the lie to that story. Intel (INTC) acted better after being punished for no particular reason. And Nvidia (NVDA) , once the hottest of the hot, rallied shaking off short sellers calls that its earnings were going to collapse because of a slowdown in cryptocurrency mining with Nvidias graphics cards. I think it is wrong to link this terrific company that closely with Ethereum, where demand has dropped dramatically along with the currency's value, but with the currencies now up an upswing you did see Nvidia's stock fly higher. It's not what we bulls on Nvidia want to see. We want Nvdia up because of the data center, gaming, autonomous cars, and machine learning. But after the blasting it's gotten, I guess you take it where you can get it.
Another key portion of the bull case? No explosive presidential tweets. We didn't see a threat to Russia, although that doesn't mean there will be no retaliation for whatever involvement they may have had in support of the Syrian government that might have used poison gas on its own people.
We didn't get a tweet about an attack on the FBI or the special prosecutor, Robert Mueller, other than a riposte against the New York Times about what the President called fake reporting about how he was going to fire Mueller in December.
The absence of fiery tweets is a real positive. Plus, President Trump was out on the stump saying that Chinese trade talks are going well. And there were press reports that the President may actually be considering re-entering the TransPacific Partnership allowing for multilateral trading talks. Why does the market like that? Anything that makes it seem like President Trump is more of a free trader than he might otherwise be is considered good for worldwide commerce.
Off even a whiff of a possibility of a trade cooperation with anyone, we saw the industrials surge. They have been hampered by a belief that if we get too many tariffs, as some thought we had in 2002, we would see a collapse in the industrials. Today you could see how they can roar, something, candidly that hasn't happened since the President announced his aluminum and steel tariffs. A reversion to 2017? Sure felt like it.
Now if we know one thing about 2018 it's that this market can't really get a head of steam going without running into contrary data points on every part of the confluence. That said, you have to marvel when it happens, even if it means taking some profits when it doesn't.