If you think for a minute that this economy is easy to figure out, then you are just a dreamer. We are at a moment where you could argue that the economy's off the rails or the economy's about to roar, and I would think that either case can be made in a thorough and rigorous fashion.
In fact, this is the most half-full/half-empty moment we have seen in ages. Let me start with the bullish forecast, and it's pretty darned powerful.
First, we have fabulous employment numbers. The jobless claims are the lowest since 1988. That's a staggering figure. Just incredible. You simply cannot have that level of employment and believe you could be anywhere near a recession. It's just impossible.
Second, housing's incredibly strong. We know housing represents only 10% of the economy, but it punches well above its weight when you think about all the business that comes with building or buying a home. This morning, luxury homebuilder Toll Brothers (TOL) said this has been the best spring selling season in over 10 years. To quote from the call, "the supply of new and existing homes continues to trail the growth in population and households". Bob Toll, the founder of the company, said on the quarterly release: "Many factors are bringing buyers off the fence right now, including low interest rates, urgency created by the limited supply of resale, and new homes and improving personal balance sheets and credit profiles."
I have followed this company since it came public. I have never heard them this bullish, and I want to make something very clear. When the market was red hot right before the housing crash, Bob Toll was forecasting that there's too much hot buying and things would end badly because credit was too available to the wrong people. That's not what he's saying now. It's just a fantastic time to be in the homebuilding business and it will stay that way as long as rates are low and jobs are plentiful.
Then there's the incredible revolution in technology that is putting so many people to work. We talk a lot about cloud computing, but when you listen to the numbers of people who need to be hired by these tech firms and the wealth they are creating, you have to say this is an economy that can't get enough bodies and an economy that is enriching anyone who owns stock. Toll pointed out that there is a self-fulfilling notion of the stock market; as it goes higher, the people who own stocks feel richer and do some buying.
What are they buying? We know they are buying iPhones -- the numbers are staggering. We know they are buying anything that goes into the home. We heard that from Home Depot (HD) last week, which is seeing a level of purchasing that's pretty insane.
And they are taking trips galore, as we know from the airlines. Just today JetBlue (JBLU) raised numbers. Every single cruise line boosted their earnings forecasts and Disney (DIS) and Universal theme parks announced some amazing numbers. These are all special, experiential opportunities and their sales are amazingly strong.
Feeling good? Excited by the prospects that I just outlined?
OK, now let me give you the other side of the trade.
First, the bond market. All my business life, for 33 years, I have been told that no individual is as smart as the bond market. It is the sum, the repository of all wisdom, and interest rates have been on a relentless decline. They are saying there's just not a lot of demand for money. They are also saying the Fed better not raise short-term rates because there's absolutely no reason to do so. Not with this inexorable grind toward 2% on the 10-year.
Second, as hot as the housing market is, the auto market is cold. Mark Fields, the former CEO of Ford (F) , lost his job in part because of the weak first quarter the company had. A lot of that is the decline of sales in the United States, where business has just plateaued. We also got some terrible numbers from AutoZone (AZO) today showing you that spending on cars is way down.
Third, the wrong stocks are going higher. The consumer-product stocks have been ripping. That's just insane if the economy is strong. They rally when the economy is slowing, not speeding up. Sure, some of the gains are from the stocks of companies that are rumored to be targets of Kraft-Heinz (KHC) . But a prototypical stock like Coca-Cola (KO) , which is certainly not a target, acts terrifically. I am so tempted to be a buyer of Procter & Gamble (PG) here as a catch-up trade to all the others in the business.
The utility stocks are acting as if they are junior growth stocks. Cramer fave Dominion (D) hit a record high. American Electric Power (AEP) is pennies from a record. Same with Con Ed (ED) . You do not get a move in this group like this if you have any hope that the economy is gaining strength.
Then there's the FANG and FANG-derivative stocks and all of those related to social, mobile, cloud and video games. They have been juggernauts. The one thing they have in common? They do not need any help from Washington to make their numbers. That's an important distinction because the big industrials and the banks have, for the most part, seen their highs earlier in the year when there was hope for tax reform. But the scandals and the health care repeal-and-replace usurped the agenda and budget the president's people put together, which is philosophically different from anything the Republicans or the Democrats have ever put out.
There are some big cuts in taxes and in entitlements like Medicare, and even if Trump were a dictator I don't know if he could get this through. It is so far removed from the reality of the way Washington works that you can bet that it will further push back any hope for tax reform or infrastructure or repatriation legislation. Without help from Washington, it is hard to see the economy can maintain its strength in the face of the rate hikes that the Fed seems to view as so necessary.
And then there's the biggest economic bear story of all: retail. We came through this retail earnings season with even the good ones being pummeled. Any retailer in the mall, anyone, saw their stocks annihilated, with even Foot Locker (FL) and Children's Place (PLCE) getting hammered. The former may have deserved it, the latter didn't, but it doesn't matter. They all got taken apart. When the only strong stories in retail involve Walmart (WMT) and Costco (COST) and Home Depot, and the latter has come down since it reported, then you can only conclude that the consumer is anemic and not spending. Or that she has everything she wants except Grand Theft Auto, an Apple phone and makeup!
So what are we supposed to make of the mosaic? How can it be so oppositional? I think it's temporary. One of these two visions is going to triumph over the other. I believe the economy will get better, that the bonds are a sell, not a buy, and that the economy will prove resilient.
The forces of weakness right now do outweigh the forces of strength, and if it weren't for the power of international markets to influence the fortunes of many of our companies that do business, then I think the weakness would be too palpable and the stock market would be due for a more significant pullback than we got last week. As it is now, though, the contest hasn't been resolved and until it is, I think we will have a hard time breaking up or down from these levels.