Yesterday I sounded off on those who would scare you out of your shorts about the Fed, typically because that's all they really care about, but also because they tend to think that the stock market's gone nuts anyway.
The former bothers me. The Fed is just an input; an important one, but it is, in the end, just a big factor in figuring out stock prices.
But the latter? Understandable, because the market keeps reaching different conclusions on the same pieces of information, and that is inherently irrational.
The truth is you never know which way this market is going to lean. A week ago, for example, Gilead (GILD) was perceived to be a hapless company with a lot of cash, but now that M&A has heated up in biotech, it's being viewed as a company with a lot of flexibility because it has a lot of cash. Gilead's as brilliant this week as it was stupid the last.
Six sessions ago, Nvidia (NVDA) looked like a semiconductor company with a stock that had gone too far on the same tired news of good auto and gaming sales. Then the Fed doesn't hike and it's off to new highs because it has tremendous growth that transcends the slowdown the fed sees. No more rollover. Now it's an acceleration.
A week ago, with oil getting hammered, EOG Resources (EOG) was looking like a spent force, a company that was caught at the top buying Permian assets with oil now plummeting, perhaps to under $40 because of the perma-glut. Then we get a couple of big rumors about an OPEC détente ahead of a meeting in Algiers next week, and boom, it's a growth stock climbing right back in the game.
We have had so many of these reversals of opinion with nothing really happening, that it's become a little insane. A week ago the aerospace stocks were finished because of flagging demand. Now they are high flying because of vague orders from China.
We hated the consumer packaged goods stocks after their yields went too low, courtesy stock appreciation while their earnings had leveled off and takeover activity, post Mondelez (MDLZ) -Hershey (HSY) had cooled.
Now, with the Fed on hold, we can't get enough of them and there's a scramble to pick them up.
I have never minded that the market can change its mind. I do not like it, however, when the market changes its mind based on vague information and statistics that don't add up, or changes on nothing at all. Is Clorox (CLX) really safe at 2.6% yield and not at 2.2%? Are the aircraft orders really there? How do we know what Gilead's going to do? Nothing whatsoever changed at Nvidia. EOG is a huge beneficiary of the manipulation up of oil so many times by poorer OPEC nations.
These are the real reasons, away from the Fed, that the market is hated. The mercurial nature of looking at the same data and liking it and then hating it makes it awfully hard to treat the market seriously. At least with the Fed policymakers, they make decisions and you can make up a view on the Fed. But if the valuation of companies changes wildly from week to week on nothing, they think, what's the point?
Me? I say adjust. Companies are a lot less fickle than the Fed and, ultimately, what they do determines their valuation, not Janet Yellen, Stan Fischer or any of those other players to be named later.
The critics and the macro lovers do something else, though, in the face of all of this valuation switching. So often they make a judgment that these mood swings are bad. If they are bad, then stocks should be shorted.
So that's what they do. The upshot? When the mood grows positive as it did Wednesday, you are run over for the same lack of reason that you were cascading from. And that's how what should be a small rally gets bigger, as the funds that hate stocks find themselves buying them because even as it sounds really good to be bearish on television, it still looks bad to those who you report to -- unless, that is, you are running your own money.