Return to growth? Sometimes this market takes an unfathomable turn and we try to fathom it. Today is one of those days. Out of nowhere, it seems, investors have reverted to seeking growth regardless of the economic cycle, and that's the undercurrent behind the averages.
Where do we see that growth? Today it's coming in three areas: biotech, housing and the group I describe as "the cult stocks."
We always wish we could find order in the market, meaning that we can link the stocks that are going higher with some established pattern. But thin Veterans Day trading without any official release of data and a closed bond market makes for some erratic pattern-free trading at best. Or to put it in the context of the Eagles big win last night, I mean in the context of the NFL, we had broken field running today, divorced from any data other than from China.
Case in point: housing. The one thing we know that housing needs to go forward is low interest rates. We've got them. And now we are beginning to see the results. We got strong pricing and order data from Toll Brothers' (TOL) release yesterday and D.R. Horton's (DHI) earnings today that indicate this lagging sector is at last participating in the more robust portions of the economy.
You can always tell when a new trend overwhelms the negativity of a sector when investors overlook something wrong that normally would destroy the momentum of a group. In this case, Horton, one of the largest homebuilders in the country, actually missed the quarterly estimates but charged ahead anyway.
Housing's only about 10% of the U.S. economy but it reverberates, or punches above its weight in so many ways that its tentacles always surprise. So not only do Lennar (LEN), PulteGroup (PHM), Toll and Horton move up in lockstep, so do all of the ancillary plays. Whirlpool (WHR), part of a slap-happy oligopoly of appliance companies, springs higher even as nothing in particular is happening there right now. So does Sherwin-Williams (SHW), which, along with PPG Industries (PPG) and Masco's (MAS) Behr, has gigantic share of the paint market, where prices have been lifting even as raw costs have been coming down -- a terrific state of affairs from gross margin expansion.
I said the other day that the HGX, the homebuilding index, looked like it was breaking out, and the follow-through today makes me believe that this last leg of rate declines, the ones you least expect given what the Federal Reserve has been doing, seemed to have a more positive impact on the economy than all of that Fed bond buying. Once again, we have a solid intellectually rigorous refutation that all that matters is the Fed. You finally get the homebuilders off the schneid and it has more to do with European bond yields going down than anything that happens in Washington.
Second group? Biotech. Speaking of Federal Reserve irrelevancy, this gigantic move in biotech started right after Fed Chief Janet Yellen railed against the stretched valuations of some of the smaller companies in that group. Again, I point this out not because I want to poke fun at all who believe the Fed is the sun, the moon and the stars of our thoughts, but because of irony. This group's not trading with anything but itself.
So often Gilead Sciences (GILD) and Celgene (CELG) have led the group, but today the group's being pulled around by the noses of Regeneron Pharmaceuticals (REGN) and Isis Pharmaceuticals (ISIS). Isis is raising $425 million in convertible senior notes to further expand its pipeline, which includes an amazing spinal muscular atrophy drug and some novel lipid formulas, and that's got the stock up a quick 10%. Isis CEO Stan Crooke's been talking of late about that pipeline and I think the drug's move isn't done -- not by any means.
The more visible move comes from Regeneron, the company that already has one blockbuster in Eylea, the macular degeneration drug that's recently been approved for diabetic macular edema. Last week, Regeneron stumbled for a day when it shaded down the range for Eylea sales, and I have to admit, as much as I love this stock, I thought it might be down more. I attributed the arresting of the decline to its voracious partner, Sanofi (SNY), which seems to want to buy every share it can in the open market.
Today I realized that the excitement with Regeneron comes from the possibilities stemming from a new formulation, Dupilumab, which is being used to control asthma. Regeneron put out a release talking about how the positive effects of the drug were seen across a broad population of asthmatics in its phase IIb trials, which was unexpected by many. Hence, headlines like this morning's Piper Jaffray report "Asthma Data Reinforces Dupilumab Blockbuster Potential" or Credit Suisse's "Homerun for Dupilumab in Asthma."
This drug could turn out to be wondrous as it is showing results against all sorts of allergic diseases, including dermatitis, and chronic rhino sinusitis, both of which are huge markets. You tack these on to the developing anti-cholesterol franchise and you recognize that Regeneron is developing into a major pharmaceutical powerhouse. Quite a run from $5 when we first introduced the stock to you and $400 where it trades today.
Finally, when I think of cult stocks, meaning stocks that trade to their own beat irrespective of the four walls of the spread sheet (i.e., their prices have nothing to do with their valuation), I think of Amazon.com (AMZN) and Tesla (TSLA). They both roared today at first glance, on nothing. But if you root around on Tesla, you realize that CEO Elon Musk was tweeting a host of positives about the car. He's become his own PR machine. I used to joke that some companies have a high press release to earnings ratio. But this guy's got a sky-high tweet to no earnings ratio. Maybe that's even more magical.
The run in Amazon? Strictly trader central. We had a classic sell-the-news situation with Alibaba (BABA), as traders piled into the stock ahead of Singles Day, that unique communist celebration of capitalism that subsumes Christmas, your birthday, Valentines Day, Mother's Day and Father's Day (can you imagine the Chinese Hallmark putting out billions of Singles Day cards?), and then returned the stock post-holiday and put the proceeds into Amazon. Don't believe me? I know their ilk. That's precisely what happened.
I see some other small unit combat action in today's battlefield. Hilton Worldwide (HLT) successfully placed $2.6 billion worth of stock, or 103 million shares, by Blackstone, a huge win for that private equity company. That unleashed buyers in Marriott International (MAR), Wyndham Worldwide (WYN) and Hyatt Hotels (H). Meanwhile, high-growth restaurateurs Chipotle (CMG) and Buffalo Wild Wings (BWLD) broke out, usually a sign of either lower food inflation or lower gasoline prices, most likely the latter.
And otherwise, it's a consolidation day. Unimportant in the firmament unless you find yourself in the pocketful of winners in today's session.