Every time you think they have buried tech, every time you think they have left the growth drug stocks, it turns out to be precisely the moment to buy them. Every time you have written off the industrials or decided the Fed rate hikes don't mean anything to the banks, the money flows right back to the group. The result? A bountiful day for so many groups that we can overlook the carnage that continues in the wake of the Amazon (AMZN) -Whole Foods (WFM) tie-up.
Where were the buyers last week? Where were the sellers who crushed these groups last week?
It's a great question given how quickly this market has given up on each group, only to come back in the end. It's why I have urged you to buy the dips endlessly because I think they all have positives that I must remind you of because the negativity grows so thick so fast that you lose sight of these opportunities.
Let me go over what each group has going for it so you know why I am so adamant that you can come right back to them on weakness.
I want to start with the financials and not just because I have Lloyd Blankfein, CEO of Goldman Sachs GS, on Mad Money tonight. The financials are a unique group. They are the only group that is dependent on two governmental entities, the Federal Reserve and Treasury, to do better. Both organizations are blowing huge tailwinds toward these companies. I was pretty astonished last week that these stocks traded down when both Treasury and the Federal Reserve gave them kisses. Treasury offered drastic regulatory relief that would be so important for many of the banks, especially Blankfein's.
There' so much government-forced non-producing overhead at the banks that you can literally raise estimates if Treasury gets its way. Then the Federal Reserve gave them a second rate hike this year and it's clear they want to get that fed funds rate up dramatically on a percentage basis as fast as possible. There's nothing that creates more risk-free earnings than rate hikes. The banks make more on your deposits and don't pay you much more on your accounts or your certificates of deposit. It's just a plain old windfall for turning the lights on.
Bank of America (BAC) and JPMorgan (JPM) are the biggest winners, but all the banks benefit. If we get true regulatory relief, the banks will be able to use some of that gigantic excess capital to raise dividends and buy back stock. That's why a Wells Fargo (WFC) can go up a percent even as Sen. Elizabeth Warren is urging the Fed to fire all the members of the board of Wells for their cross-selling transgressions, yet its stock can still go up 1%.
How about tech? I got list of the president's historic American Technology Council summit and it felt like a buy list for today's action: Jeff Bezos from Amazon, Tim Cook from Apple (AAPL) , Satya Nadella from Microsoft (MSFT) , Alphabet's (GOOGL) Eric Schmidt and Adobe's (ADBE) Shantanu Narayen. (Wells Fargo, Apple, Alphabet and Adobe are part of TheStreet's Action Alerts PLUS portfolio.)
Of course, it's a happy coincidence as this group would be on fire regardless of the meeting, although when we interviewed Chris Liddell, former Microsoft CFO who is now White House director of strategic initiatives, he told us that only 3%-4 % of government business is in the cloud and it has almost 6,000 data centers. That's absurd and it's easy to see the government could save tens of billions of dollars with an aggressive deployment, which would be fabulous for many of these companies.
More important, though, is that some monster seller of tech either walked away or finished his selling last week. I cannot stress today how difficult it is for big sellers of common stock to get out of groups they may own. In the days I worked at Goldman Sachs, where I overlapped Blankfein, the bank would do what was known as positioning. It would literally buy gigantic orders, like a good deal of the tech stocks that were for sale last week, and then parcel them out to buyers. Nowadays, the Volcker rule prohibits that kind of buying and makes for a much more disorderly market where stocks fall on much less volume than they did in the old days. So a large seller can destroy the market, especially when we have a lot of tag-along sellers blasting out of the QQQs or shorting them, thinking the selling will never end.
But it did today, and while we don't know if the seller has no stock left or we simply bounced off the 50-day moving average of the Nasdaq 100, the tech stocks flew higher in unison. I know, seems nutty, but this market is way too thin to handle big sellers or buyers.
All the stocks that did fly, especially Apple, have a good buy thesis, yet it didn't matter last week. Now, as the stocks go up, we start hearing good things and tomorrow analysts will come out to remind us why we like them.
How about the drugs and the biotechs, which have been soaring here? What's that all about? I think it is about a campaign promise gone awry, the president's stillborn plan to cut the prices of drugs of all kinds. It just doesn't seem to be happening. There's no negotiation between the government and the drug companies over pricing, which was a key tenet of the campaign. On Friday, administration officials were trying to come up with some policy on pricing but came up empty-handed. Sources in Politico on Friday said it is likely that Joe Grogan, director of health programs at the Office of Management and Budget, is crafting the executive order. That would be fabulous news for the industry because Grogan's previous job was the head of federal affairs for none other than Gilead (GILD) , which created a hepatitis C cure that cost $80,000. It's hard to believe that he will be all that tough on his former brethren.
Where does all the money come from to get back into these stocks? First, it is still streaming out of oil and gas and retail given Amazon's buy of Whole Foods. The food stocks keep getting hammered as we have to believe Amazon can demand new terms that will hurt their margins.
But remember, there's always hedge fund money that wants to play the trend of the day, and today the trend is to buy banks, tech and healthcare, and all three are getting a boost from Washington. With Russia and healthcare reform off the table for a day, you can see what happens. These three sectors catch bids, the sellers walk away and the stocks fly up in unison.