Can they crack the market on interest rates? Can the combination of inflation, some of it mandated by the government, but a lot simply from all sorts of commodities in short supply and labor in aggressive demand, crush the bull?
On days like today it sure seems it. A combination of the 10-year treasury boring down on 3%, a series of disappointments in the consumer products stocks, an amazingly fast growth in personal and corporate spending and real battles in the financial war with China have, in a flash, caused a flash flood of selling seemingly out of nowhere.
Let's unpack this parade of woes and figure out, as unemotionally as possible, how low they can take us.
First, the trade war with China's getting ugly as we knew it would. We have put tariffs on steel and aluminum, both of which are just now starting to tighten the world markets. But far more important is the action our country took against ZTE (ZTCOY) , the big Chinese cellphone company, when it banned selling them our high technology parts.
Last night China struck back -- and I do believe it is tit for tat -- with the PRC's antitrust authority saying, basically, that it's going to block Qualcomm's (QCOM) acquisition of NXP Semiconductors (NXPI) on antitrust grounds. Why do I say that it seems related to ZTE? Because there's really no basis for the decision as there is so little overlap between NXP and Qualcomm as I wrote earlier today on this site.
Nevertheless, it had a devastating impact on the semiconductor stocks which have already been reeling from a slowdown in cellphone manufacturing, something that hit home today when Taiwan Semiconductor blamed a smartphone slowdown for a shortfall. It didn't matter if a semiconductor company was a potential acquirer like Broadcom (AVGO) , Intel (INTC) , Texas Instruments (TXN) , or, of course, the epicenter of the blast, Qualcomm itself, or potential prey, Analog Devices (ADI) , Integrated Device Technologies (IDTI) , Qorvo (QRVO) , Skyworks Solutions (SWKS) or Cirrus Logic (CRUS) , or something in between like Nvidia (NVDA) , Micron (MU) or Western Digital (WDC) or Seagate (STX) , the latter two disk drive not semi got crushed. The selling extended to a second day of pain for semiconductor capital equipment companies, KLA Tencor (KLAC) , Applied Materials (AMAT) , ASML Holdings (ASML) and Lam Research (LRCX) which reported a very good number yesterday but gave you guidance that suggested a second-half blip in orders.
The semis are a leadership group, so the tone was just plain jarring. There are not enough winning publicly traded companies in a trade war with China -- mostly steel makers like Nucor (NUE) which gave a great forecast -- more on that tonight -- or Alcoa (ARNC) , as the tariffs are pointedly out to try to shut down unfair trading by China -- so the pain was much more palpable than the pleasure.
Rivaling the semis for pain, though, were the stocks of the consumer product companies. Procter & Gamble (PG) delivered subpar 1% growth and talked about some vicious competition, particularly in grooming -- think Gillette -- and the stock got shelled down to an almost 4% yield. Really nasty. Any one in Procter's path got shelled, too as shareholders of Colgate (CL) and Kimberly Clark (KMB) now know all too well.
It didn't help that Morgan Stanley slapped outright sell on Clorox (CLX) , which is a very well run company. It called the valuation stretched. It's a lot less stretched now.
Even the thought-to-be-immune tobacco companies got pounded. Phillip Morris (PM) , the international seller of Marlboro, reported a shocking decline in sales of its flagship brand and the stock plummeted 16 points. Altria (MO) got laid to waste, too, falling four points. It was if the world suddenly realized these companies make cancer sticks. Oh, and there was disruption, too. E-cigarettes are taking their toll on the traditional butt fatal attraction.
When you are on these consumer packaged goods conference calls you have a constant theme running through them: inflation. It usually centers on freight: we don't have enough drivers to take the raw goods to the factories or the manufactured goods to the stores.
Inflation's hard to ignore when oil's challenging $70. It's been on a tear. Of course, today's the day that oil investors chose to take profits so a group that had been a leader -- a leader I hate because it is so zero-sum -- took a much-needed breather, except if you are bull on the commodity. So you had this oddity of the transports being down with a grudging recognition of how oil has run and the oil stocks selling off because oil couldn't maintain its miraculous run at a time when the U.S. is pumping like mad.
Of course there's also plenty of scuttlebutt about risings prices because of tariffs. Frankly, I don't think they have much to do with the consumer packaged goods, but they get lumped into the inflation conversation. Retail should be swell here, as we heard from American Express AMX that card use is way up. But the news didn't help the group at all because Jeff Bezos took the time to crow about how there are 100 million Amazon prime users. That's deadly for brick and mortar. That plus the collapse of Bon Ton, a venerable but distinctly, Amazonable retailer, sent shivers up the spine of all chain store investors. The ETFs that link them insured that no one was unscathed, even those that are doing incredibly well right now.
No one seems to focus on how the Death Star known as Amazon (AMZN) has been keeping prices at the retail level way down and that's squeezing the margins of everybody who sells to the consumer. That's how bonds can sell off, with the 10-year headed toward 3% in a redux of what caused the market to plunge back in February, right before the Eagles won the Super Bowl, now immortalized by Super Bowl LII, a video about the run to the trophy that actually has me giving Coach Pederson a pep talk before a key game five win over the 49ers.
It wasn't that long ago, like Friday that the market lamented how the bank stocks weren't worth owning because rates weren't high enough and lending wasn't large enough. The bond market took care of that worry and added a woe about a potential fourth rate hike this year to stem inflation. Suddenly we re-discovered the greatness of the group, led by JP Morgan (JPM) , which you couldn't give away for the last five days, but there simply aren't enough bank stocks to offset all the other carnage. Instead we see an epic sell-off of the formerly oddly safe haven homebuilders as a quarter point increase in mortgages is, once again, thought to be the death knell of a beloved group, at least beloved for about a fortnight.
You know what's particularly galling though, on day like today? The money that flows back to the oft-pronounced dead, FANG. Amazon helped the cause but we got a positive note about how we now expect Alphabet (GOOGL) to report a miserable number, so if it does, then it could be off to the races. More on that later, too.
Never forget, by the way, that the A in FANG is Amazon, not Apple, the latter of which was kneecapped by a piece of Mizuho research giving you an iPhone obituary. Thank heavens, because we haven't had one of those in at least two weeks.
You know me, I like to talk to people who stop me on the street if they want to talk stocks. Coupla guys came up to me today and wondered if this is the end, the end my friend, a second reference in one month to Jim Morrison, whom I loved. I, on the other hand, settled on the politically pointed Ball of Confusion by the Temptations, a song that sadly holds up as you can tell from the publicity surrounding a Philadelphia Starbucks (SBUX) , in a moment of brotherly hate. Why confusion? Because if inflation were so out of control the banks wouldn't rally. Retail wouldn't be able to go from sainted to sinful literally overnight.
Look, the consumer package goods haven't been safe for ages. But when rates are rallying their 3% yields don't cut it. Sure there's a cellphone slowdown. And yes, we have some inflation built in, chiefly oil. Still, a healthy consumer, thank you American Express for that insight, and corporate largesse thanks to the Federal government, will offset tariffs and moderate price and mortgage increases almost any day of the week. As bad luck for the bulls would have it, just not this day.
