Is a placid market helping the American consumer more than we realize?
I have made it no secret that I think the endless obsession of so many on the Fed has caused the millions and millions of people to miss this amazing run from the bottom.
That's because many have been conditioned that once the Fed starts raising rates the stock market can only go down, because it should never have been up here in the first place.
Under this Fed-centric view, everything that could cause a stock to go up, whether it be the yield, the shrunken share count or takeovers, are all Fed and central bank fueled developments.
I have never chosen to make investments based on the Fed, because the Fed that I have known over my life of investing is fickle, often wrong, and certainly a huge waste of time if you are trying to pick the stocks of companies that end up dominating in our and the world's economies.
Take Action Alerts PLUS portfolio name Facebook (FB) . If you had made up your mind that all that mattered was the Fed would you have even considered the stock of this company? Would it have meant anything to you at all? How about Growth Seeker name Amazon (AMZN) ? Fed a factor? Sure, you could argue that a company like Johnson & Johnson (JNJ) or General Mills (GIS) might have seen their stocks go up as bond market equivalents, but I would contend they would have been doing next to nothing if it weren't for managements cashing in on good opportunities and avoiding bad ones.
But how about the stock market as a whole? If you have a Fed that's actually not fickle, with a grown-up at the helm, and you have relatively stable business conditions -- even if they aren't barnburner -- and, most important, no shocks or surprises to the economy, it may mean more for the overall economy than we think.
It may mean more because that regime produces very little stock movement overall, and I am thinking that very little stock movement is exactly what we need.
Think of it like this. Last year I had Manny Chirico, CEO of PVH (PVH) come on Mad Money and basically lay out what, in retrospect, would be called the "disaster" of retail. We had more inventory, more promotion, more red ink, more negative comparable store sales than could be recalled in ages.
What was going on at the time? I scanned the headlines. The only really salient stories that came up involved stock market declines. Notice I didn't see volatility. I am talking about out and out declines. Back-to-school season, so important for retail, was just crushed by the collapse of the U.S. stock market in the face of Chinese -- not American, but Chinese -- weakness.
The spillover was quite frightening, as we know from the back-to-back 500 Dow point declines at this time last year, extending to down 1000 at one point before a sharp reversal. I think it put a ton of fear into a consumer who otherwise would have been doing fairly well. Sure, job growth is better right now, but not so much better than it was last year to explain the horrendous retail environment.
It was last year at this time that we put the mall on the critical list and decided to not resuscitate it.
In retrospect, I think a noisy Fed not speaking as one -- many Fed officials were calling for a rate rise -- coupled with the Chinese stock market crash produced weaker retail sales, not Amazon and not a weary consumer.
That's right, I think the stock market hurt the consumer economy and this year, with its placidity, it's doing the opposite. Is there really a better explanation, all other things being pretty much equal, why this back-to-school season is so strong?
Now we are on the eve of Yellen's talk in Jackson Hole and many are bracing for market turmoil. We had a tweet from a presidential candidate calling for a rollback in drug prices, something that hurt Mylan (MYL) but could crush, say, new market darling Valeant (VRX) . We had the kind of late afternoon decline that has historically caused a real hiccup in stocks in the ensuing sessions.
So we have to watch for the end of what can only be considered some pretty halcyon days. But be mindful of the contrast between the back-to-school seasons and remember that the stock market itself, not the Fed, may be a more important conductor to the orchestra that is the U.S. service and retail-based economy than we think.