Has the market lost its collective mind? Can this rally really be sustained? Isn't it insane?
You know what? It is kind of nutty. But bull markets are like that. In a stampeding bull market like this one, you get a level of optimism that borders on alchemy. There's a total suspension of skepticism and a wholesale belief that everything works out for the best. It's the kind of stuff of novels, not reality, where the bad morphs into the good and the negatives turn into positives. It's like The Sound of Music meets Mary Poppins with the post-Grim Reaper Scrooge thrown in. Let's throw in Scrooge McDuck while we are at it just to emphasize the ludicrously positive tone of the moment.
Here are some things I see that tell me we are in the full-bore Pamplona mode, and while you may think it's imprudent, capricious and downright lacking in any sort of rigor, it's working and I'd be negligent not to acknowledge it.
First, there's Tesla (TSLA) . This morning we learned Tesla only made 260 Model 3 cars this last quarter when we were looking for 1,500. It was the kind of thing that if it had happened, say, to Ford (F) , the stock would have been the worst performer of the day.
But the moment this very disappointing news came out, we had analysts tripping all over themselves telling us not to worry, don't micro-analyze and stop harping and obsessing over it. Nobody was harping or obsessing, yet it did dawn on some of us that it would be nice to hold Elon Musk to a level of accountability that we might show for others in any line of work, not just a CEO. When I expressed a bit of critical reasoning about this short-term failure, analysts quickly derided such small thinking and reminded me that Musk did say it would be manufacturing hell. I told one analyst who is negative that this stock is so loved it would probably go higher, not lower, on the news. That's exactly what happened.
Second, for ages General Motors (GM) execs have been telling us the company has embraced the future, that it sees the writing on the wall and it knows electric and autonomous are the two ways to go. It's been a constant refrain. Guess what. In a bull market, you wake up and find that after years of saying the same thing, something happens and people suddenly start taking it seriously.
When GM announced it is going to have a bunch of electric models by 2023, the market just decided this wasn't GM the dog, it was GM the loved one. A stock that couldn't get out of its own way erupts into beast mode and it just can't be brought down. In beast mode, you get analyst after analyst who has been lukewarm suddenly embracing the darned thing. And it's just chewing up the gridiron with positive yardage. Oh, and just wait, when we see the big numbers out of Florida and Houston because of the storms. They will cause estimates to skyrocket and we will wonder what we were thinking in not buying it.
Third, this morning Delta (DAL) came out with numbers that basically said, look, despite the storms, we are not falling apart. We are still in business. Not to worry. In another market, this stock would be down, if not down hard on this news. Not in this market. The idea that Delta's not bathing in red ink was a clarion call to buy this bedraggled group. They are all beloved now. It's a mad scramble to buy the stock of any airline, not just Delta. It's incredible that news that could send a stock down is literally rallying the whole group.
Fourth, when Sherwin-Williams (SHW) decided to buy competitor Valspar a year ago, we knew there had to be some tremendous synergies that would make this paint combination a total winner. But then the bears spread the story about peak housing and buyers of paint stocks ran to the hills. The group became a hated cohort along with everything else that went into a home. This morning Sherwin Williams announced the synergies. I thought they were very good, pretty much what I was looking for, but in a bull market people are shocked by the mundane and cheer for the routine. So the stock of Sherwin-Williams soars. Of course, any store that sells paint then rallies, again led by Home Depot (HD) . There's a stock that has trampled more shorts than any I can remember because, alas, wasn't the Fed supposed to raise rates quickly, weren't sales supposed to dry up and wasn't management just being overly optimistic with their blowout numbers, their huge buyback and all that happy talk about high same-store sales? Wasn't that just a ruse?
Looks like it wasn't.
Fifth, one of the absolute constants of this era is that the homebuilders keep putting up great numbers. But when they do, the stocks invariably fall apart. Why? Because a consensus holds that those numbers are the last good numbers and there's nothing but an abyss behind it. Every quarter is the peak, no? That's what we did believe. Until Lennar (LEN) reported this morning and again it delivered a methodically good report.
I swear this exact same report would have sent the stock down a couple of bucks not that long ago instead of up two smackers.
But now we no longer think it's the end. Now people are talking about the early innings and the race to buy a house before rates go up.
Sixth, in another time, if the Senate hauled in the disgraced ex-CEO of a company that committed one of the most shameful acts of negligence I can recall, you could expect the stock of that enterprise to get pounded.
In this market? Once the tongue-lashing of Equifax (EFX) former CEO Dick Smith occurred, it was like a clarion call to buy. Ah hah, what an opportunity to buy a beaten-up stock of a company that no one seems to have distanced itself from and that banks are still using as if nothing happened and as if the inevitable lawsuits mean nothing. It's as if Sen. Elizabeth Warren took up estimates, went from a hold to a buy and put it on the congressional recommended list.
Finally, not that long ago, we heard from a number of research firms that traffic has slowed at Dominos (DPZ) , one of my favorite companies. The stock got positively pancaked and it looked like it was down for the count.
Last night it catches a buy recommendation from Stifel, a brokerage house, and it's as if those weak projections never occurred. So much for those analyzing foot traffic and receipts. It's all aboard, the Domino's train is leaving the station.
So you know what happens now? Analysts see this kind of action and they say, gee, I have to put on some more buy recommendations, especially given that they are moving stocks left and right. The reluctance disappears. The sense that the buys won't mean anything goes away and suddenly it's raise rating, raise price target and the sales force has something to say.
You know how powerful this can be? I would say that with the exception of the department stores and the oils, a case can be made for anything in this market, and the longer oil holds up here, the more likely you will get upgrades of those stocks, too. In fact, just this very morning Morgan Stanley talked about the stars aligning for the oils in a call that read like oil's about to break out to levels not seen since 2014 and the oil companies are so lean they will be rolling in it.
Yes, these are the times that try bears' souls for certain, that is, if they have them. It should not be happening. It's way too positive, but then again, I guess you could say, maybe we've been way too negative and until every single bear acknowledges that things are better than we thought, it could -- with shallow selloffs for exogenous events save nuclear war -- stay like this for the duration.
