Not all rallies are created equal; some are more equal than others. Today's rally is one of those more-equal deals because the components are sustainable and have shown over time to be the most beneficial to a market over the long term.
Before I go into them, though, let me explain what makes a good rally and what makes a bad rally because there are such things as bad rallies.
I like a rally that involves the financials, specifically the banks, because that says the economy is healthy. A bank rally is like a Rock of Gibraltar. When bank stocks do well, that means there is more credit being lent. It means there is healthier employment. It means small businesses feel confident and are going to expand. It means there will be big commercial real estate projects that will put a lot of people to work. It means the government could take in more tax receipts and the budget might be better. It means more mergers and more initial public offerings and more financial activity that could lead to raised estimates for the biggest banks that have investment banking and deal makers anxious to put companies together, all good for stocks. And yes, it can mean stability and prosperity could be ahead.
I know that's a lot to put on one group, but I have studied rallies for 39 years and I have never seen a bad one that's been led by the banks.
If anything, it's a precursor to better things, wider breadth and a lot more companies that will do better next year.
Concomitant with the banks going up is a decline in the stocks that do well even if we are going into a recession, stocks such as Clorox (CLX) , Procter & Gamble (PG) , Coca-Cola (KO) and Kraft Heinz (KHC) . Who wants to be in those stocks if things are going to get better next year? Not me and not you, although a diversified portfolio is never a bad thing and it's fine to have one or two of them.
I am sure some of you are saying, wait a minute, Cramer, the reason why the bank stocks are going higher is because interest rates are going higher today and the Federal Reserve is going to raise the short rates at its December meeting.
Isn't that bad?
For most of the time I have followed the markets, interest rate increases are bad. They are antithetical to higher prices for stocks because they are competition for them.
But the competition is really lagging here and has been for some time. It's OK for the banks to make more money and it's OK for the Fed to normalize rates because the economy is pretty healthy. It's not right to keep rates this low just because it can help stocks that have higher yields.
One day I believe rates going up could do some fundamental damage to the economy. But not from these lower levels. In fact, the higher the rates, the more money the banks should be able to lend to people. That's good, not bad.
So yes, we historically don't want rates to go up in some sustained lockstep fashion regardless of what it does to the economy; we want thoughtful rate increases and that's what Janet Yellen and company have given us.
We did have some very strong durable-goods numbers this morning, so rates could also be rising because of those. And the president is talking about tax reform that might cause a bigger hole in the deficit.
I am sure some bondholders are nervous about that and the inflationary aspects of it.
Me? I am not and it isn't because I don't fear inflation. It's because, as I said the other day, I don't believe the president's plan can be enacted.
I know tax cuts are less knotty than repeal-and-replace. Healthcare is a difficult issue for all nations.
Tax cuts are very popular.
But they are not popular with the new brand of Republican legislators who are going to demand that some rates go higher because they don't want the budget to increase.
Will we get tax reform? Perhaps. But I think it is a long ways out and should not be part of your thinking if you are running a business or managing a portfolio.
So, suffice it to say I don't mind the reasons why rates are going higher and I am grateful that the banks are our leaders.
I am also excited to see some retailers on the biggest-percentage gainers list. Not that long ago, Best Buy (BBY) gave the Street some guidance after the quarter that sent its stock plunging, but now the consumer discretionary company's stock is coming back. I'm thrilled to see Burlington Stores (BURL) and Ulta Beauty (ULTA) going higher. I am especially glad these stocks are hanging in because the biggest loser in the Dow Jones index is Nike (NKE) , and I think that decline has more to do with the end of the endless hikes in sneaker prices as well as a belief that perhaps they aren't as integral, at least in the U.S., to the new experiential economy. You Instagram the face - thanks, Ulta -- not the feet.
Finally, I like that tech is up, but I like that a specific type of tech is going higher, the tech that goes into the data center, into mobile and into autonomous cars. We know that because that's what Micron (MU) told us last night. The semiconductor stock's strength today has created a lot of pin action in other semiconductor stocks, like that of Texas Instruments (TXN) and Analog Devices (ADI) . The idea that Micron is buying new machines but not overbuilding to the point where there are too many chips being made has sent up the stocks of Lam Research (LRCX) , Applied Materials (AMAT) and KLA-Tencor (KLAC) , among others.
Why is this so important? Because we want to have strength in the entire tech complex, not just the FANG stocks. When it's just FANG -- Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Google (GOOGL) , now Alphabet -- it's too narrow and it is almost zero sum, which is the opposite of a well-composed rally that has legs. (Facebook and Alphabet are- part of TheStreet's Action Alerts PLUS portfolio.
You want more signs of health? One of our favorite stocks is that of Cintas (CTAS) , the uniform maker. Tell me if there is a better tell of small-business growth than additional uniform orders, which is precisely what the remarkable quarter this company gave you. Funny what will happen to a stock when a company reports a $1.45 a share gain when the Street is looking for $1.31.
Final sign of a good rally? The transports, which are hitting still one more record high. The rails, which move heavy goods, are levitating again. The airlines are hanging in despite weather-related number cuts. XPO Logistics (XPO) , the company I regard as the most important trucker, is seeing its stock go up again. The stock of FedEx (FDX) is a point from a new high.
I mentioned that the recession-proof stocks are getting hit today. You don't want them as leaders. You don't want drug stocks as leaders either, and they are flat to down, which is a good sign for the overall market. And the utilities, which are direct plays on recessions, are being hammered.
So here's the way it shakes out. Sometimes you get a rally that signifies there are positives at work underneath for many companies, not a few. Today's one of those days. Enjoy it, October's coming and we will in a few days have to hear about crashes. I will have to trot out my experiences during the Great Crash of 1987. Hey, it's the anniversary year! So don't get cocky. But you should feel better about today's upward action than you have for some time in this market. And that's saying something.