How can some stocks be so hated on a Friday and loved on a Monday? How do whole sectors like the industrials go out of favor over the weekend? How can the despised come to the fore seemingly out of nowhere?
The answer is that new data come out that, when reassessed, change the opinions of those who matter (the big-trigger pullers who run billions and billions of dollars and are always trying to beat the S&P 500). The fact that they rarely do doesn't matter. The fact that they try is what you are seeing on your screen.
Specifically the unemployment data here and the Chinese trade figures over there were the proximate causes of the lunacy that passes for order in today's stock market, where every single piece of data create a new interpretation of what's happening in the world's economies.
Let's start with employment. When I wrote Get Rich Carefully I assessed a decade of data about what moved my charitable trust's portfolio positions, what were the most impactful piece of macro information that could move stocks no matter what the fundamentals under the companies should have dictated.
Only one fact, only one piece of information: the nonfarm payroll figures, like the ones that came out Friday. When the numbers came out initially the big buyers and sellers couldn't figure them out. Is it possible that you could have job growth that wasn't as strong as it had been and there would be little impact from one sector to another? Was it conceivable that traders -- and believe me it is all traders -- would stick with the stocks of the industrial companies no matter what?
It wasn't clear. They didn't perform poorly, while at the same time health care was under assault from some terrible earnings and dislocations in the once-loved generic pharmaceutical industry. At the same time we had some weaker consumer product stories kicking around that the market hated, notably a report from Kellogg (K) that truly showed a slowing. You can't mount a rally when the facts don't fit the thesis, or at least that day's thesis.
So, no real judgments were made and pretty much everything went up.
But then this weekend Chinese numbers came out that were just plain disappointing. We had exports fall a couple of percent while imports were down for the eighteenth straight month.
The numbers shocked people because with a strengthening Europe, where 25% of the exports from China go, there had been hopes that the exports could be stronger. Perhaps newfound tariffs on Chinese steel here in this country caused the export decline. As far as imports, talk about a different month-to-month story. For about eight weeks China seemed to be importing all of the iron ore and copper the world was producing. But that seemed to have just ground to a halt, something that the Baltic Freight Index had been signaling for a couple of weeks in a row but nobody thought that things could switch this negatively this fast.
To make matters worse, the Chinese stock market which had been behaving well, plummeted 2.7%. It had been hugging the 3000 mark, but that got obliterated by selling and suddenly the market just feels broken.
Of course the usual culprits play a big role in deciding daily direction, namely the dollar and oil, and all they did was reinforce the data here and abroad.
Oil had been up big overnight until the China data and a switch in the direction of the wind where Canadian firefighters are battling fires near the giant tar sands projects. A million barrels a day had gone off line and there was some hope among the oil bulls that this wasn't going to be a fleeting outage. But fires burn out and when they switched direction that brought a recognition that the bulls were caught leaning the wrong way. At the same time copper and iron fell heavily, confirming the oil trade. Recall that oil is regarded as a barometer of worldwide health and that barometer was momentarily knocked off kilter by a supply interruption.
The dollar? It's strong now for a second week and even as year-over-year things are better for exporters minute over minute -- the attention span of traders -- it is worse.
Now, let's put it altogether.
If the international economies are slowing at the same time that the dollar's strong that means portfolio managers exit the industrials, especially the minerals and miners.
And if the domestic economy is slowing? That means buy the drugs and the faster-growing growth stocks that can absorb the body blows of an economy that's not creating jobs as fast as it was.
Plus, fewer jobs mean lower inflation, which means the long-term case for fast-growers like biotech and tech comes to the fore.
How does it play out? Consider the case of Freeport McMoRan (FCX), a copper gold and oil stock that was up more than 65% coming in today. All three of its end markets had been on fire leading up to Friday. All three!
Now all three have cooled. That's why, even though it sold its interest in a gigantic copper mine in the Democratic Republic of the Congo for an astounding $2.65 billion to a Chinese company in order to pay down debt, the stock was slaughtered and shed about 10% of its value.
The absurdity here? If this sale had occurred before the employment number and before the Chinese data figures I think the stock would have jumped 10%.
The flipside, the domestic stocks? What can I say?
This is where there's really some lunacy. The most hated stocks of late are the drug companies that look like Valeant Pharmaceuticals (VRX), the CEO of which will be on "Mad Money "tonight, namely Mallinckrodt (MNK) and Allergan (AGN). Forget whether the analogies are right, they've just been total dogs. Today they soared, with Allergan being helped by news that Teva Pharmaceutical (TEVA) is getting ready to close on its $40 billion purchase of Allergan's generic drug business. Things were so convoluted in this group on Friday that the word was the deal wouldn't close.
The amazing thing about those who really love domestic growth? They will pay anything for it, even if it is tainted. Take these six amazing comebacks: Chipotle (CMG), Hormel Foods (HRL), Vertex Pharmaceuticals (VRTX), Kroger (KR), Biogen (BIIB) and Darden Restaurants (DRI).
When Chipotle reported its first-ever loss as a public company and I urged you to buy the stock after interviewing Chief Financial Officer Jack Hartung, I was roundly booed in social media. That just made me redouble my efforts. After today's gain the stock is now nicely above where it reported the so-called hideous number. Remember, portfolio managers have no problem holding their noses and buying.
Vertex Pharma reported some disappointing number last week on its cystic fibrosis drug and nobody like Biogen's decision to IPO its hemophilia business instead of selling it. Today they are loved.
Hormel's back because of some data from Tyson Foods (TSN) foods this morning that shows the raw costs of feed for livestock are way down.
Kroger's the quintessential buy domestic stock, as it had no foreign exposure whatsoever. Sure its same-store sales had a bit of a slowdown, but hell hath no fury like an industrial rotation scorned.
Darden's not much different. The last quarter was viewed as so-so during the rotation into copper and iron, but this is a strictly upon further review stock and the love is back.
Now, I don't care for these kinds of rotations because they reveal a market that has no conviction whatsoever. I could call what's happening today to be a resumption of the bull market, long dormant in the domestics.
But here's the issue.
Retail's being swept up in the domestic love affair. I get that TJX (TJX) and Ross Stores (ROST and Dollar General (DG) are roaring. They are doing quite well. But the mall denizens like Nordstrom (JWN), Macy's (M) and Best Buy (BBY) rallied, too. We are going to get earnings from the big retailers all week. Can this rotation survive the onslaught of miserable numbers? Or are the stocks so down it doesn't matter?
That's the power, though, of weak employment numbers and stumbling Chinese numbers and poor commodity pricing. But remember a market that changes on a dime can change on another dime and this one's more than likely to do so on the whim of weaker data from those with newfound love. Don't get too carried away, the market gods crushed those who did just 72 hours ago.