For almost a year we have experienced a ferocious phenomenon, the rolling bear market. It would strike sector after sector. We never knew which would be the next to feel the evil ursine beast's wrath.
But ever since the bottom on Feb. 10 of this year, we have experienced something entirely new and different -- rolling bull markets where, one after another, a group gets lifted and we get a re-valuation that boosts all stocks.
Just consider today's action. This morning we come in expecting the worst from the biggest bank in the world, JPMorgan Chase (JPM). We know earnings have been under pressure from banks for ages, a combination of newfound restrictions, a slowdown in trading and investment banking, and an overarching belief that the world is too slow for banks to get what they really need to make big money on your money -- a bunch of quick rate hikes to expand margins. Plus, we are all concerned that there could be a big spike in bad oil loans given the crash in energy prices.
Instead what do we get? How about remarkable revenue growth from a robust loan book, a terrific increase in what they make on your money courtesy of December's Fed rate hike, no real jump in soured energy loans at all and, best of all, a fantastic month of March that suggests we have seen a trough in all things banking.
So, instead of the stock opening up and then trading down during the morning's conference call, or being obliterated from the get-go -- the pattern over the last year -- we get a stock that opens up a dollar and then pops another dollar on top of it. That's classic bull market behavior in that it didn't sucker people in -- it gave them an added benefit.
Next thing you know, the whole bedraggled group, which features many stocks that have done nothing or have been down for years, catches fire. Goldman Sachs (GS) jumps four points. Wells Fargo (WFC), which is part of the Action Alerts PLUS portfolio, moves up more than a dollar. Bank of America (BAC), also part of Action Alerts PLUS, increases almost 5%.
Now all of these other companies haven't reported yet, and most are due to report. It is doubtful they will be as good as JPMorgan's quarter was. However, this very morning, the government, in the form of the Federal Deposit Insurance Corp. and the Fed, put out some very damning stuff about how the capital standards of the banks still aren't up to snuff. The government wants living wills that will cause banks to have a huge amount of cushion on the balance sheet. And yet that didn't stop the group from running. Maybe the worst is over? You have to think that could be the case given the ability of the banks to withstand still one more withering governmental regulatory blast. It's a remarkable thing.
Or how about the rails? The first one of out of the chute, CSX (CSX), reports a number that's down big year over year. Its principal cargo, coal, is off 30%. Most of its business lines are faltering. And what happens? It has one of its biggest days in years! That's because it has had awesome productivity and is down so far that it reflects no hope at all when things could be getting better worldwide.
Next thing you know, kaboom! We have a turn up in the transports, a group that has acted so horribly of late that it threatened the entire broader advance.
Or consider the turn up in the metals stocks. Here's a group that's been hounded by bears forever. Not today. Alcoa (AA), which reported a disappointing quarter on Monday and saw its stock get hammered, is now above where it was when it reported. Freeport-McMoRan (FCX), which was in its own personal bear market for five years, has now broken out above $11. It wasn't that long ago that we feared insolvency for the debt-laden producer of oil, natural gas, gold and copper. And why not? All of those commodities were in freefall. Now they are going higher. So, a stock that was in a vicious cycle down falls into a virtuous cycle upward with ample opportunity to issue more stock to fix its balance sheet and make people want to own the darned thing.
So, on a day when Peabody Coal (BTU) files for bankruptcy and its stock is suspended and so many are fretting about debt covenants for other mineral and mining companies, the group soars.
Now I can go on and on. I suggested the other day that where Broadcom (AVGO), the superior semiconductor company, leads us, the group will follow. That's just what happened today with a much-broader move in this seemingly moribund group.
The growth software companies, which have been resting for a month, catch bids and many stocks that had been crushed during the end of January/early February selloff actually come back to life. Stocks such as Tableau Software (DATA) and LinkedIn (LNKD), the proximate cause of the entire tech selloff, came roaring back to life today in one of the most obvious rolling bull-market moves we have seen in ages.
Now, these are all historical and they are terrific to point out, but we have to go deeper. We have to ask what makes these moves happen? How can companies that report weak numbers year over year such as CSX or JP Morgan -- which, despite its better-than-expected quarter, still suffered a 6.7% profit decline -- see their stocks roar?
The answer is a little complex, with multiple reasons that add up to the possibility of stocks going higher, not lower, on news that might have sent them plummeting before the bottom was reached in February.
Let's tick them down.
First, there's tremendous negativity. Hardly a day has gone by this year without someone calling a top in the entire market, let alone almost daily downgrades of the stocks of good companies that might have better futures than analysts give them credit.
Second, the Federal Reserve is at bay. Remember, the slogan of the late, great Marty Zweig, the dean of stock market knowledge: "Don't fight the Fed." Sure, the Fed raised rates in December, precipitating the astounding fall we had at the beginning of the year. Plus, it outlined the very real possibility of four rate hikes for 2106.
However, ever since the Fed traced out that course, the country's economy has gone soft. Sure, hiring has been good, but spending as represented by aggregate retail sales, like we had this morning, is actually down and down considerably. The meager wage increases people have gotten just don't allow for additional purchasing power even with lower gasoline because so many other costs, such as apartment rent and health care, are exceeding salary gains. Plus, inflation remains subdued -- we had a minus 0.1% decline in prices announced this morning.
Third, while our economy is pretty anemic, we are seeing some real stirrings overseas. Last night China reported an 11% increase in exports, a number that was quickly derided by the pundits as aided by seasonal factors such as the Chinese New Year. But I say, wait a second. Even if you include those numbers, nobody was looking for that good a number.
I think it's because Europe, which is responsible for a quarter of the exports for China, is getting better. And I think the best is yet to come, especially when you take into account that Italy, which is responsible for about one-third of the sour loans on the Continent, is finally taking action to shore up the balance sheets of the big banks by putting together a fund to buy bad loans. A better China is how you can see huge jumps in the stocks of companies such as United Technologies (UTX), Honeywell (HON), Caterpillar (CAT) and Cummins (CMI) as they all do a colossal amount of business in the Far East.
Now, we all know the usual caveats. Oil has been strong and that has encouraged people to be less cautious about their views on worldwide growth. But that could go away this weekend if the big confab of OPEC and non-OPEC producers -- the one that caused the $26 bottom to be put in back in February --unravels in rancor.
Tomorrow we could get some seriously bad bank earnings and JPMorgan's numbers will be a distant memory. Still, it's my jobs to recognize patterns, and the rolling bear markets have been replaced by revolving bulls, and that pattern is in its infancy, not on its last legs.