Every now, and then it is nice to see some old-time rationality prevail.
What's rational?
OK, we get a punk GDP that shows 2% growth. Classic money, I mean money that invests in individual stocks, not on macro concerns, looks at that GDP number and says, "OK, we have a slow economy. Who is growing faster than that 2% that has some visibility into 2012? Let's go buy them."
Then, mutual fund managers, who still practice this art, look for a stock such as Chipotle (CMG), which has been crushed mercilessly, even though the last thing we heard was positive. Same with Panera (PNRA), wherein the company told you that business is strong on my show not too long ago. Or they go for senior growth, such as Nike (NKE), which just boosted its dividend, or McDonald's (MCD), which told you that earnings are very strong. You can go for a Costco (COST), which you just heard was performing well. Dollar Tree (DLTR) recently reported a fine number, so the mutual fund managers can buy that, too. We know that Yum! (YUM) has got excellent growth. So does Domino's Pizza (DPZ). Estee Lauder (EL) reported a terrific quarter. So did Deckers (DECK). And Colgate (CL) and Celgene (CELG). That means buy 'em. Buy 'em all.
People just circle back to the stocks of companies that outperform that sluggish GDP growth. That's a method that used to work incredibly well, especially when you have low interest rates and a tame Fed, as we have now.
It's almost quaint.
Now, here's what you need to know about this kind of thinking. It only works on days when we have nothing terribly new happening in Europe. And it works really well when you have actual good news, even good news that isn't all that important, such as the idea that today's announcement that the IMF wants to lend a hand to some smaller countries that are struggling meet their bills. I say it isn't that important because apparently that facility is not meant for Italy or Spain or Greece.
Yep, you have benign to positive news overseas, and you can look at the American economy, make a judgment of who is doing better than the economy and use actual stock-picking to make a profit owning a stock. That is why I continue to say we have to do the work, the micro work, during this period, because if you have some sustained good news, you can have a sustained rally from an oversold position.
OK, it's not the real M.O. for this market any more. There are far more days that Europe hurts us than helps us. Growth stock-picking has become a real bust. But now and then, on days like today, we see how a functioning stock market can work, and frankly, it's a beautiful thing.
