I am not going to get sucked in here. This rally is, arguably, as unimportant as yesterday's selloff. That said, there's a little more substance to the rally today than there was to the selloff yesterday. There was enough to bust the gloom that had been cast over this market, the gloom that had swept a huge number of stocks to 52-week lows.
Rather than argue that it's a totally meaningless rally, let's put some meat on its bones:
- Copper is breaking out -- a three year high -- which means there is the possibility of stronger-than-expected growth worldwide. That's why Freeport's (FCX) stock can go up. That's why Caterpillar's (CAT) stock can go up, too. They are pretty much paired because you need CAT machines if you have a mineral rally. Look out if Caterpillar takes out its 52-week high. That's something worth hanging your hat on. This mineral rally includes Alcoa (AA) , which has a stock that has been hanging out in the mid-$30s forever. This is a very visible breakout occurring right now. I think China is making less aluminum and importing more given how much aluminum damages air quality. Copper smelting's not much better. Maybe Chinese buying's behind all these minerals, which is a huge positive confirmed by very strong bulk shipping rates. Yep, the move is actually based on something!
- Europe's up about 0.89%. You don't hear about it much anymore, but we have been trading in sync with the markets overseas. It doesn't make much sense. But like I said, it doesn't have to make sense for it to happen.
- Interest rates have moved up ever so slightly. Given how oversold the banks are, they are taking their cue from literally five ticks in rates going higher. I am sure there are people who say this interest rate bump has to do with something that Fed Chair Janet Yellen might say about how strong employment is. That may make people feel more sure of a December rate hike. The market needs that more than anything, given that the banks, as I say forever, need to be among the leaders of any rally.
- Mitch McConnell told us there is literally "zero chance" that Congress will fail to raise the debt ceiling. Many, including me, have been agonizing over this debt ceiling for ages. "America's not going to default," McConnell said at an event in Kentucky, "and we will get the job done in conjunction with the secretary of the Treasury." There are only 12 days that Congress works in September. They get this done and nobody insists that we go back to repeal-and-replace, then it is possible to have a serious discussion about tax reform. Remember, tax reform is a lot easier than anything else because tax reform means lower taxes.
- President Trump was on message last night. We have gotten used to him causing a level of uncertainty that, when he actually gives a speech that talks about the need to defend the nation and to have an unlimited troop plan -- "open ended," as he called it -- for Afghanistan, then we get the hawk that many thought Trump was. This Congress is in the mood to spend more money on defense if it is going to spend on anything, and that's great for a whole bunch of sectors. Lockheed Martin (LMT) , Raytheon (RTN) and General Dynamics (GD) are reliable leaders -- the last one had a weak quarter and the stock has worked its way back from where it fell. Aerospace includes Boeing (BA) , which is the leader in the Dow. Its stock had paused. The pause seems to be over. I keep thinking people underestimate the importance of Boeing vs., say, FANG. Boeing's a terrific company and a hugely important stock.
- We have had a huge correction. Forty percent of the S&P is down more than 10% from their highs. When people keep waiting for a correction, and it is having one, that's often a fantastic opportunity.
- Macy's (M) CEO Jeff Gennette came out this morning unequivocally declaring that his dividend is safe. He also made sure to talk about real estate values and monetizing them. And he didn't talk about the fourth quarter being promotional. That's a nice change from the previous quarter's conference call. Anything positive on retail after the destruction wrought by Foot Locker (FL) these last two days is most welcome.
- The data center is on fire. Last night we had Cyrus One (CONE) on, the big data center company, and the move to the cloud is so aggressive and yet so early on that you have to feel terrific about this one portion of tech. This one portion is really important because it includes companies like VMware (VMW) , which is a software company whose business many, falsely, believed might be peaking. You see, they have a core server business that is on premise, and when you hear that, it is typically antithetical to the rush to Amazon Web Services (AWS) cloud adoption. As Deutsche Bank describes it, this was the "AWS roadkill thesis." But Oracle (ORCL) , Microsoft (MSFT) and Red Hat (RHT) have all said there is no erosion in this kind of business. VMware has hit a 52-week high on this upgrade. The fact that the AWS cloud could be doing well and everyone else's cloud is doing well is a gigantic positive.
- Once again, the non-FANG tech names away from the cloud are on the move. The two most important names in this cohort, Micron (MU) -- which makes Drams and Flash, two important components -- and Lam Research (LRCX) , which makes the equipment needed to make chips, have stocks that are trying to break out. These are cheap stocks and the market has been acting as if the next year has to be worse than this year because too much money has gone into building fabs that make components, so supply has exceeded demand. Perhaps it isn't happening? That would be major because non-FANG tech is so crucial to any broad rally. I also like what I am seeing in Nvidia (NVDA) , which was the leader in non-FANG tech until that last quarter, which I think was falsely viewed as disappointing. An NVDA run is not something people thought could happen even a few days ago.
- OK, let's deal with the elephant in the room: Apple (AAPL) . It's been stalled and when it stalls, all you hear about is that something's wrong, maybe with the new phone, maybe with a competitor. So when Apple's stock rallies, everyone searches for something that's right. They buy first, though.
- Some classic growth names are doing better. Take a look at Starbucks (SBUX) . What a dog that's been. Today Morgan Stanley says the market is pricing an earnings guide-down in the stock of Starbucks. It does seem this decline from $64 to $53 takes into account that the company's not growing the way it was. A re-rating that's priced in gives people a chance to step in, especially after a very bullish piece in Barron's this weekend that eliminates worries that something might be wrong beyond what we know. The stock of McDonald's (MCD) could take out its high soon. That's been a huge leader. The biotechs all seem to have ignited at once. The video game stocks are done pausing after a remarkable run. They are recharged and ready right on time, meaning the time of the new Madden EA launch this week. These are all part of the important pastiche that you need to create a rally. (Nvidia, Apple and Starbucks are part of TheStreet's Action Alerts PLUS portfolio.)
- Finally, you have some big earnings reports. Homebuilder Toll Brothers (TOL) , cosmetics company Coty (COTY) and medical device maker Medtronic (MDT) have all reported and the earnings have been found wanting. And yet, amazingly, nobody cares. A market that shrugs off what are perceived to be disappointing earnings is one that could roar on good reports.
Rallies are always confluences of positives coupled with an absence of negatives. This one's got positives and ignores negatives. Therefore, it is highly unexpected and could gain momentum on its own.
Yep, yesterday's early morning decline was based on nothing. At least this one's got some underpinnings, which is highly unusual in August when, as I have said repeatedly, we trade on nothing and make up reasons for each move in every direction.
