As easy as it is to spot the rollovers and the subtle implications of multiple tightenings because of stronger -- not strong, but stronger -- growth than these ultra-low rates justify, it's the blessed stocks that are just as easily identified.
Now, there are always crossover stocks, those that thrive under both subpar economic activity with low rates and the more steady-as-she-goes rate hikes. More on those later.
But what I care about right now is the sets of stocks that have fallen way behind the market because of fears that they could not make their benchmarks given the state of the U.S. and the world. These are the stocks that are vulnerable to exogenous events because of ties to overseas. As long as things are calm, post-Brexit, we know these stocks are the ones that could give us surprises to the upside, something that's needed to power them higher.
Let's start with the banks. All of them, literally all of them, look like they are ready to launch. Of course if we get hikes, then we will be anniversary-ing economic weakness and low net interest margin. Given that there is renewed loan growth as standards grow looser because of job growth, this most important group could frolic without ever getting near where they were before the Great Recession.
So, lets' start with Bank of America (BAC) , which is still well off its post-Great-Recession high because the company's earnings power was so impaired and it lacked the blessings of the regulators in a new, tougher regime.
With a tangible book value north of $16 and change and a decent-sized buyback, albeit a puny dividend, BAC could work its way through to $17 and still be dirt cheap.
But not as cheap as Citigroup (C) , which could rally $16 before it comes near to its tangible book. It's why it's become such an outsized position for Action Alerts PLUS, which the newsletter that club members subscribe to get many of the ideas we talk about here for their own portfolio.
Citi's quarter was strong and it's gone from worst to first with the FDIC, in large part because of aggressive changes CEO Mike Corbat has brought to the culture of the bank. I am not deriding JP Morgan (JPM) here. It is, however, much more expensive on a book value basis than these two and Wells Fargo (WFC) is just plain rich. But JP Morgan's a play on both European and U.S. strength at a time when both are coming to the fore. Wells Fargo owns the mortgage market, which is getting hotter and will not be stopped by a quarter or even a half of a point. But it also needs oil to stay high because it got in way too late and was not the bank's finest hour of lending.
I know that no one really cared for the quarters of Morgan Stanley (MS) and Goldman Sachs (GS) , but then again they, too, are cheap against historic norms and they do have good, not great, earnings power. They can be bought.
It's the regionals, which don't have much love (that I find intriguing). First Horizon FHN is so good here, as is Key (KEY) . They can be stalwarts. BB&T (BBT) and PNC (PNC) look good, as does, of all things, Zions Bank ZION.
How about those that do well straddling rates? Take a gander at Visa (V) and MasterCard (MA) . They are igniting here and going back to where they were before a court decision set them back. Many of the insurers work. Go with quality, which means Chubb (CB) , although I worry about Louisiana exposure.
There's always some confusion about the industrials vs. the commodity-heavy names. This is a market where you can spot the winners quite easily. I think that Cummins (CMI) and Paccar (PCAR) are two standouts that are truly signaling a turn in this market. Same with Eaton (ETN) , Ingersoll-Rand (IR) and Parker-Hannifin (PH) . They are all subject to earnings risk, but that's the nature of the game. None of these are for the squeamish.
Two evergreen industrials also work for those too chicken to go down the food chain, although they have run so much they can be vulnerable to a shock. Half positions please on Illinois Tool Works (ITW) and Danaher (DHR) .
If you want commodities, you have to go with commodity lights: International Paper (IP) and, Dow Chemical (DOW) . The former is putting through price increases as that's what happens at this point in the cycle. The latter gives you two ways to win. Either with the Dupont (DD) merger or its mostly-proprietary chemical business. Dupont should go higher, too.
Tech's huge and right here. The semiconductors lead with AMD (AMD) , Applied Materials (AMAT) , Broadcom (AVGO) , Cirrus Logic (CRUS) , Micron (MU) , Texas Instruments (TXN) , Qorvo (QRVO) , Skyworks (SWKS) , Nvidia (NVDA) , Microchip (MCHP) , Qualcomm (QCOM) and NXP Semi (NXPI) taking honors. Takeover names have become hot and I bless both Marvell Tech (MRVL) and Cypress (CY) , as both seem to be poised for a sale. These are all internet of things stories, but I find it quite interesting that the semis most levered to the next-generation Apple (AAPL) phone -- Qorvo, Skyworks Cirrus Logic -- are doing so well.
There are lots of good old-fashioned growth stocks I like here. Facebook (FB) , Amazon (AMZN) , Alphabet (GOOGL) , Microsoft (MSFT) and Adobe (ADBE) look strong, with the latter being in charge of the move. Slower-growth tech, but still making a good move? Cisco (CSCO) , which is going from hardware to software in rapid fashion. Surprises here? Symantec (SYMC) and NCR (NCR) look way too strong to be just garden-variety earnings driven.
The rails are so strong that I have to think they are vulnerable come earnings. I just can't in good conscience tell you to buy Norfolk Southern (NSC) , Union Pacific (UNP) , Kansas City Southern (KSU) or CSX (CSX) . They have become the pure transport momentum plays, signs that commerce is back, not coal. You are in them at your own risk.
I know oil's supposed to stall out at $50. But the oils that have or are in a position to buy cheaper crude in the ground, oils like Cimarex (XEC) and Concho (CXO) and Pioneer (PXD) will be hard to stop here. I point those out, but I could have easily said Devon (DVN) , Marathon (MRO) , Occidental (OXY) and Schlumberger (SLB) , the service company. Oh boy, get this, Kinder Morgan (KMI) is trying to make a comeback. Wonders never cease. ,
Housing's still working, even though the jury is still out on the homebuilders. I am drawn to Whirlpool (WHR) and PPG (PPG) here as a catchup play to Fortune Brands (FBHS) , Home Depot (HD) , Lowes (LOW) and RPM (RPM) , the maker of Rustoleum. The benefits of the Valspar deal should soon be evident when paint company Sherwin-Williams SHW reports its next quarter.
Retail's doing what it should be doing, which is showing a broader level of spending. Macy's (M) , Kohl's (KSS) and Nordstrom (JWN) still have game, as does Dick's (DKS) after the collapse of Sports Authority. People want to call a bottom in Tiffany (TIF) . I think it's just annualizing some very easy comparables. Urban Outfitters (URBN) had an outstanding quarter. L Brands (LB) is putting in a bottom. It's right to grab. Whatever works, I guess. JC Penney's (JCP) pullback could be pure joy given that it is up against 400 Sears (SHLD) and, while the $300 million loan from Eddie Lampert to the company will most likely give them enough inventory to get through the holiday season, we all know that Sears is pathetic, a gift that keeps on giving simply because if Lampert goes to the stores he would know what kind of CEO he's become: the kind he would have laughed at years ago.
As always, there are special situations. International Flavors and Fragrances (IFF) shows no sign of quitting. The consolidation in the beer and can industry just keeps paying dividends, hence the runs in Molson (TAP) Constellation (STZ) and Ball Corp. (BLL) . You can never go wrong with the consolidating exchanges, namely Intercontinental (ICE) and Nasdaq (NDAQ) , although you always have to ask how they can keep their earnings momentum going. It's clearly detached from IPOs.
Now remember, these are all from the playbook of higher rates and what they mean, not from an earnings point of view. But we aren't in earnings season. Worse, we are about to enter the notorious month of September, which should give us some volatility and some swoons that have been most absent. I believe each swoon will make the big ugly charts even more hideous, but make the charts with pulchritude shine for the buy-on-the-dips crowd that, for so long, reached for the consumer packaged goods, utilities and real estate investment trusts.
Is it too by rote? I learned a long time ago, don't outthink it. So, I'm not going to do anything other than acknowledge the profound sea changes this market is now undergoing.