Why don't we go down more with the talk of a rate hike? I think I have the answer.
We have been going down. At least the stocks that do poorly in a rate-hike situation are going down.
In the meantime, the stocks of companies that tend to benefit when the economy is quite strong and multiple rate hikes are in the offing are all breaking out. That's why the declines seem so muted: it's a changing of the guard.
The leadership is quite stark. It's the industrials and the banks. Among those, what's so palpable about the move is the leadership choices the buyers are making: the rails and the banks, with Norfolk Southern (NSC) and Bank of America (BAC) the leaders. Norfolk Southern is the company that has had to do the most to combat coal. It's made some big changes, but you should know it's the shakiest of the big three when it comes to earnings.
But you could say the same thing about the banks, where the leader is none other than Bank of America, the company that's most levered to multiple rate hikes -- the kind that Vice Chair Stanley Fischer is readying us for.
What's really amazing here is that the buyers are dusting off the old favorites for when a rate hike occurs. Given that the last time we were operating like this would be in the mid-2000s, it's incredible to me that any of the younger buyers even know the playbook.
But they do.
First, let's go over what they sell because, man oh man, are they selling them.
First, of course, is the real estate investment trust cohort because the presumption --correct given the multi-year rally -- is that their now-meager yields won't offer much solace in a rising rate environment.
Some of this is just pure ETF-ization, meaning the total commoditization of the group. They all go down at once. At this stage, after this decline, we should start seeing a difference between the rate of the declines. I fully expect the apartment REITs to underperform simply because a key tenant of this recovery is that people will be buying homes again. Remember, we are still at levels of home building that we haven't seen since we were half the size of the current population.
I know it seems like the numbers are big, but they aren't. And what has been big is renting. Integral to this moment, though, is the notion that employment is strong enough that people can, once again, afford a mortgage and will be given one if they have a decent down-payment. Credit availability is, at last, up, as the banks recognize that the economy's ability to provide jobs may be stronger than once thought. If you want to focus on this theory watch Avalonbay (AVB) , down 5% for the year but given its only-3% yield -- not enough if we really get rolling -- it should be the bell cow this part of the market follows.
Next up are the utilities. They almost all look awful. I mean truly awful.
Many yield 3.75% to 4%, so they might be tempting. I say wait. There could be more to fall. Why not? Many of them are up 10% for the year and if we get a couple of rate hikes I suspect they will give up those gains.
What's really getting ugly fast are the health-cares, truly being pushed over the cliff by the EpiPen controversy and how quickly Hillary Clinton seemed to be able to change the debate for the coming election with a simple tweet blasting pharma.
Teva (TEVA) and Mylan (MYL) are ground zero.
But it really doesn't matter who you single out, whether it be Express Scripts (ESRX) or Johnson & Johnson (JNJ) or McKesson (MCK) and Pfizer (PFE) . Remember that only a special situation can truly outperform in a moment where AbbVie (ABBV) Abbott Labs (ABT) Baxter (BAX) , Bard (BCR) , Becton Dickinson (BDX) , Eli Lilly (LLY) , Cardinal Health (CAH) Henry Schein (HSIC) , Tenet (THC) and HCA (HCA) . And there's United Health (UNH) along with the hopeful merger players: Cigna CI to Anthem ANTM and Humana HUM to Aetna AET.
Biotech? Looks awful. That big run in Celgene (CELG) seems over. As does the run in Biogen (BIIB) and the death rattle of Gilead GILD seems just out and out nasty.
One other that seems in the crosshairs: Mallinckrodt (MKN) . So far, it's been able to get away with huge price increases for Acthar, its money drug, but how long can that last in this environment?
The consumer products group still hangs in but it is one to watch. Funny, I would be focusing not on Coca-Cola (KO) or Procter (PG) or Colgate (CL) , but actually on Dr. Pepper (DPS) and Monster (MNST) , both with big runs and both seemingly most vulnerable. The safest of these would seem to be the beer stocks. Chalk it up to endless consolidation.
In retail, I hate to flog a dead horse but the decline in Dollar General (DG) and Dollar Tree (DLTR) , while specific to their miserable disappointments last week, are unlikely to find support simply because at this moment investors would be trading up in retail to more full-price alternatives, even if the customer hasn't yet done so because a lot of the decline in these has to do with food deflation.
That's going to continue to hurt Target (TGT) and Kroger (KR) and who knows how long Walmart's (WMT) stock can stand the pressure, even as I think that the company has become a special situation turnaround. Dean Foods DF is a victim of the deflation. It's a commodity milk company that's been decked here. One special callout: McDonald's (MCD) looks absolutely terrible.
The airlines just can't find a bottom. We are going to get numbers this week for passenger miles and the stocks are signaling no dice to those. They are very much oversold and American (AAL) is trying to make a stand. But I wouldn't want to be involved.
Entertainment's not really much of a category any more, but I would be wrong not to mention that both Disney (DIS) and Twenty-First Century Fox (FOX) look terrible. Disney's ESPN and Fox, I presume, is a Roger Ailes-less Fox News cable.
There are almost no tech names that are looking vulnerable with the sole exception of Apple (AAPL) . The stock's cheap, but that won't matter because it's signaling that there will be no major uptick with the Seven. Only an acquisition of something that would bolster is that service stream would demonstrate a commitment away from phones, even if you think that Apple doesn't need one given that its service stream could be worth $28 billion next year. Lotta time between next year and now. though.
Here's an odd, but correct, group to roll over: the offshore drilling and service companies. That's because at these prices it would be ridiculous to mount a monumental campaign anywhere on water. Hence the continuing collapse of Diamond (DO) , Ensco (ESV) , Rowan (RDC) and Transocean (RIG) and Oceaneering International (OII) .
There are plenty of onshore companies that are right-sizing and upgrading, no need to call a bottom with those particularly, because I would think that anything short of $70 crude won't get you back to any positive trajectory.
Finally, there's the-worst-of-the-worst group in the book, a group that is screaming multiple rate hikes: the gold stocks. It really doesn't matter which one you pick, they are all just components of a vast ETF. They are hard to look at, like a train wreck. Only Stanley Fischer coming out after the close today saying "one and done" could restore these bad boys.
In short what's getting dumped, with the exception of a couple of special situations, is exactly what's always been dumped, the non-cyclical, non-economically sensitive stocks. Just like the old days.
Stay tuned for the great looking ones. It's worth it, they are that special.
