Darn it all, it's the wrong stocks that are hitting highs. It's all the usual suspects, the consumer packaged goods, the most value-oriented retailers and the niche tech and health care stocks. Only a handful of the "good guys" -- the companies that are doing well internationally, the big-capitalization companies that make a rally into something that lasts -- are making new highs, and it's a sign that we may not have the staying power to last through the week, unless things start percolating away from the same old same old.
I know all rallies look like they are created alike, with dynamic moves all over the place. But these kinds of rallies are just mirror images of sell-offs, where on day one we get everything down and then by day two we know who's going to bounce and who isn't and most don't.
Before we get into the specifics, why does this distinction matter so much? Who cares, isn't a rally a rally? Just like when I said a week ago there are varying degrees of bad -- there's bad, very bad and real bad -- there are varying degrees of good, and this rally is just good and nothing more.
You want a rally led by the biggest financials, techs and health care stocks because they make up a huge percentage of the S&P 500 and they aren't zero sum. In other words, when all of these groups go higher it means you have an infusion of new fuel and aren't robbing Peter to pay Paul.
This is a robbing-Peter-to-pay-Paul advance that's just derived by the nuttiness of polling about an issue that many people feel somehow will be at the fulcrum of the destruction of the financial world as we know it.
That's right. When I listen to people who discuss the possible departure of the British from the European Union, I think, "Are you kidding me? You think that's big? Have you ever heard of Donald Trump?"
Let's say Britain leaves. Will Britain have to print a whole new currency? No. Will Britain have to have a whole new banking system because this one will default? No. Will Britain be able to trade with Europe still? Yes. Will there be food riots and insane looting? No.
It's almost comical how much people fear this move when there have been so many genuine fearful events in the last eight years.
When the largest car company, the largest savings and loan, the largest government-sponsored entities, Fannie Mae and Freddie Mac, the largest brokers and the largest insurer all go bust at once, well, wake me when we get back to Dow 6000.
Anyway, I am not going to be any less glib than anyone else. I easily can say this could be the biggest disaster that could ever be visited upon London since the V-2. That way, if it is really bad -- as in really, really bad -- I can look like a genius, but if Britain stays I will not even worry how I look and if Britain exits and the market goes down a smidge no one will ever remember my dire warning from anyone else's dire warning. It's an asymmetrical risk to cry Brexit wolf so I guess I will howl with the rest of them, but let me put it this way -- you can worry all you want, but today shows you the vindication of the buy on a pullback of many of the usual suspects even as I wish it were something else.
So, let's go over what turned out to be working, which is exactly what we said would work. First, the consumer packaged goods stocks are en fuego again because they are the least risky and most consistent in a world where we fear risk and inconsistency.
So there goes General Mills (GIS), Hershey (HSY), ConAgra (CAG), J.M. Smucker (SJM) and McCormick (MKC). Why? OK, because we are and remain in a deflationary world where the prices of everything that goes into all of these companies are coming down but they sure as heck ain't cutting prices for anything. We catch a recession from too many rate hikes or whatever, salt and cereal and peanut butter do just fine.
Next is the value sector. There's Dollar Tree (DLTR), after that delicious merger with the formerly underperforming Family Dollar. There's Ulta Salon (ULTA); you don't bet against CEO Mary Dillon. Every day more women discover that they can't go out of the house without make-up because they need to look their best on their cellphone's high-resolution screen. Ulta Selfi and Salon.
Then there is Five Below (FIVE); astonishing bargains for below five dollars. Heaven forbid you ever see a store from the mall on the list. They are all being mauled with the exception of Lululemon (LULU), where there is plenty of takeover talk married with the best same-store sales of any apparel chain.
How about tech? Poorly represented. Nvidia (NVDA) and Texas Instruments (TXN) are on the list. The former makes high-speed graphics chips for the gaming biz and the high-end auto sector, the latter is a total conundrum, because it is a supplier of Apple (AAPL), which is part of our Action Alerts PLUS portfolio, and those barely go up any more. There's Advanced Micro Devices (AMD), which comes under the category of "see, we're still not dead yet." The only real new-economy stock on the list is online real estate site Zillow (Z), and that's because it just paid its way out of a lawsuit for far less than the shorts thought it would cost.
How about off the new-high list but gaining big? None other than Priceline (PCLN) and Expedia (EXPE), and that's cheap online travel -- pretty much the same as the new frugality of using dollar stores.
So, who is shocking? What kinds of companies do we need to see more of?
There are three -- just three -- big-capitalization stocks that are roaring, that do matter, and I have to tell you they are all managerial, meaning that management had triumphed over the wet noodle of an economy we have both here and abroad. They are AT&T (T), 3M (MMM) and Honeywell (HON).
The first is benefitting from the very shrewd acquisition of Direct TV -- something that many scoffed at, but because of the NFL package it's just win, baby. Oh, it doesn't hurt that you have a very safe 4.7% yield, three times Treasurys.
Honeywell and 3M? That's Dave Cote beating everyone in aerospace, auto and safety at Honeywell and 3M's Inge Thulin trumping slowdowns worldwide with innovation. I have said it before here and I will say it again. 3M fits that core holding bill for many a portfolio manager.
Anything else worth noting? The usual insurers are there because there's nothing like insuring something and then watching it go down in value because of deflation.
And there are the oils. What can I say about the oils? We are starting to realize that the downside is now fathomable and that's a huge positive. That bounce off of $45 is bigger than you think because it's starting to look like a floor. When there's a floor, the buyers can't resist and they aren't now, with visions of $80 staring in their eyes. Good luck with that. I would be shocked if we got to $55.
So, don't get too carried away. The big rally will give way to smaller rallies and then-still smaller rallies until all that's left is the same old same old.
Not until we get fresh money, not until more investors resurface and the like affair with growth stocks comes back (the love affair ended ages ago) will we see a really good rally rather than just an OK one that can be taken away by the whim of a Janet Yellen in her congressional testimony the next two days or by a couple polls that show Britain intends to stun the world and go back to the way it was when it had its own currency and not the euro. Oops, sorry, it never scuttled the pound after all.
