Here come the buyers, right on schedule, taking up the stocks of any company that smacks of high growth or buys commodities by the bushel, and taking down the stocks of producers of anything even remotely mineral, mining or oil- and gas-related.
Earlier this week we had one of those market-wide selloffs where every stock went down because of a sudden decline in oil. I made the point that there are two sides to every coin and that the users of commodities shouldn't be going down. I said we are simply seeing the same emotional reaction we always see to a furious commodity decline: that the Federal Reserve will tighten, perhaps aggressively, and we will be forced into a recession. Forget the facts or how farfetched they might be. Everyone has the right to be stupid and to say and do stupid things. This market allows that behavior writ large.
Sure, it's painful if you own the oils. Today we got inventory numbers that showed a decline in oil, and oil rallied hard until the U.S. dollar went higher, which squelched the advance and reversed the group hard. Plus, President Obama is waging a war on fossil fuels and he's winning. And, again, some funds that borrowed a ton of money to buy oil-related master limited partnerships got margin calls, and those stocks were hammered mercilessly.
But today is also the day that the market reacts rationally, not stupidly. That means the stocks of big commodity-takers shine. And why not? Their earnings will increase. So will the earnings of companies that benefit from a flush consumer who feels better because gasoline's going lower.
Today is also a day where high-growth stocks are loved because they increase in value when inflation is subdued. Earnings expected in the year 2020 are worth a lot more if you think inflation is suppressed rather than raging. Remember, something like gold keeps its value when inflation takes off. But paper assets retain them when inflation (as measured by commodity prices) is suppressed, as it is now.
So what goes higher? How about retailers? Costco (COST), Dollar Tree (DLTR) and Wal-Mart (WMT) are pure plays on a consumer with more spending power.
How about PepsiCo (PEP), Mondelez (MDLZ), Kellogg (K) and the irrepressible Clorox (CLX)? These companies have gigantic energy and resin bills. Their packaging often costs more than the goods inside them. These companies spend more to ship cereal than to make cereal. The energy required to make, package and ship Clorox bleach far outweighs the cost of the foul-smelling stuff inside.
Low inflation means loading up on biotechs. Why not go right back to Regeneron (REGN). It just reported a fantastic quarter and got a big drug approval. Celgene (CELG) works higher, too. We know that it has made a big forecast for the outyears. People want to own Internet stocks with great growth. Priceline (PCLN) just reported and it said nothing but good things. That's perfect.
So are Facebook (FB), Google (GOOGL), Netflix (NFLX) and Amazon (AMZN). After a momentary CVS (CVS)-related faux shortfall, they go right back to the drugstores. And they buy anything gaming-related off strong projections from Activision Blizzard (ATVI), which had gigantic monthly average user growth from the Call of Duty franchise. Why not? Fewer dollars as the gas pump, more video games.
I need you to remember this kind of action; it is typical of the third day after any extended commodity collapse.
I know it seems moronic that we had to wait for the smoke to clear to pay up for merchandise that was going begging during the selloff. But fear is more powerful than common sense. That's how it always is with stocks and, sadly, for all but those who are trying to Get Rich Carefully, it always will be.