Yes, it's easy to say that the industrials are back. You have Illinois Tool Works (ITW) saying good things, and United Technologies (UTX) put up excellent numbers. That's on top of General Electric (GE) and Honeywell (HON) making positive comments about the world, despite the gloom that envelops the multinationals. And don't forget the amazing comeback of PPG Industries (PPG) from a first-class bruising. That stock went to $193 from $176 in a heartbeat, even after it reported a quarter that was initially, and mistakenly, pooh-poohed when it came out.
But I do not for one moment want to put all of these big moves in the context of earnings for specific companies. The rally is too broad and it's stemming from a mosaic of good prospective news that's gunning all the industrials.
First, if Angela "Herbert Hoover in a Pants Suit" Merkel actually goes along with Italy, France and European Central Bank chief Mario Draghi and begins to borrow to grow, then I think something special is happening. She has stood in the way of recovery long enough. I believe that she will respond not to the pressure from other countries or the ECB, but to the radical right, which can't be happy with these recent macro figures. Remember, Germany is a creature of history. Merkel's tight money philosophy is about trying to avoid a Weimar Republic-like scenario (which brought about the Third Reich). But she's also cognizant that deflation could do the same, and that's what could change the equation.
Second, if Merkel blinks, then I think that money will gravitate back to Europe as growth countries beget healthy currencies. That would be huge for the multinationals and it is resonating right here, right now.
Third, everyone knows that China is horrendous but that's usually when it becomes a good bet. I am concerned about what Caterpillar (CAT) says tomorrow when it reports, as it has made too big a bet on China. However, I have been watching the Baltic Freight index, which can help to measure Chinese growth, and it's been creeping up nicely, with a huge jump last night. That matters to me more than the 7%-plus gross domestic product number that was reported. I think Chinese domestic consumption might be growing again.
Fourth, I believe that there is tremendous pent-up infrastructure demand worldwide. We are beginning to see stirrings in the non-residential construction business, something that both PPG and Honeywell have flagged. That matters for so many of these companies.
Finally, aerospace -- which has been clobbered by a decline in airline stocks because of overblown Ebola fears -- is now getting a lift. Boeing (BA) reports tomorrow and I can't imagine a scenario where the company reports back-to-back weak quarters. We know from Alcoa (AA) and Honeywell that aerospace remains a growth portion of the world's economies, which is terrific for the majority of the capital-goods companies.
The U.S. has clearly been a source of growth for all of these companies for some time. But if we continue to get a geopolitical lift, then these stocks, many of which have been crushed, can go higher still, making them an awfully interesting place to be.