Oh, how the mighty haven't fallen. I am talking about how this market has refused to be brought down by news and information that would have, in another time, crushed the market. Instead, it goes up, which seemingly makes no sense but I think can be explained in a reasonable way.
Let's start with today's tweet from the president. "Meeting with Chuck and Nancy today about keeping government open and working. Problem is they want illegal immigrants flooding into our Country unchecked, are weak on crime and want to substantially RAISE taxes. I don't see a deal."
Do you know there have been times, whole swaths of time, where a tweet like that, about closing the government, would send the market into a tailspin? A government shutdown? They are synonymous with markets going lower. Plus, the political wrangling between when they start -- and I think they would have started if the Democrats hadn't immediately canceled the meeting because of the tweet -- and when things are resolved can take weeks and weeks, which will all produce a ton of misery for stocks.
Instead, what happened? The stock market rallied on the news. Rallied? Why? Because it means the Republicans don't need any Democrats to get a tax bill through? Because if we get a shutdown Trump style it means "The Art of the Deal" and he will get his way? I, personally, have no real idea other than the stock market doesn't care anymore about something that used to be incredibly important even a couple of years ago.
We've always been in shock and awe and in selling mode when North Korea shoots off a nuke. While the market was up big before the launch, it didn't collapse this time even as we knew little about the launch, which usually is regarded as a negative. You would think that buyers would wait for a tweet response from the president, but they used the weakness to buy stocks.
We have been conditioned that when interest rates go lower, the bank stocks go down. It's been etched in stone. It's a signal that we might not get all the rate hikes these banks need in order for earnings to expand, especially because we are seeing lower loan growth at the bigger banks.
But today rates went lower and the bank stocks roared. How big was the move? Let's just say that Wells Fargo (WFC) had still one more bad-news story, expanding the number of bogus accounts opened, and the darned stock still went higher. JPMorgan (JPM) shares, after dallying in the mid-$50s, are again at $100. These are big moves that aren't supposed to happen.
Again you could say there are extenuating circumstances. Jerome Powell, the designated Federal Reserve chairman, said on Capitol Hill that rates should be going higher starting with the December meeting. If anyone thought this was news, they really need to stay away from stocks. We also know the administration is determined to neuter the Consumer Financial Protection Bureau, which happened to have been the agency that doggedly pursued Wells Fargo. Again though, it's not enough to boost these stocks this much. They should be going down, not up. Nevertheless, they are climbing higher, destroying the orthodoxy that says this is an inconceivable situation.
Yesterday the influential analyst Katy Huberty from Morgan Stanley pulled the plug on Western Digital (WDC) , the disk drive and flash memory maker, saying that flash pricing, integral to so many devices that we care about, is peaking. This would normally be a call that resonated for days as people assess where the weakness in the tech food chain is coming from to justify this downgrade.
But then last night, giant tech supermarket Tech Data (TECD) reported a fantastic number after disappointing the last quarter and it called out software subscriptions, personal computers and next-generation technologies including cloud and security in the U.S., and Europe saw strong demand for smartphones, notebooks, software subscriptions, security networking and storage.
That's basically everything that matters and I think it blunted the second-day selloff that I would have expected. I particularly felt good about the run in Apple's (AAPL) stock after I read this transcript of the call because Apple, according to Loop Capital, is 16% of Tech Data's revenues. But I also think it gives you a green light to buy companies like Skyworks Solutions (SWKS) and Broadcom (AVGO) , although the latter is all tied up in knots over the idea of a proxy fight to replace Qualcomm's (QCOM) directors with their own in order to purchase the company.
We all know there are too many restaurants. Only a fool would think there's tons more room for expansion. Yet this morning Buffalo Wild Wings (BWLD) got a takeover bid from Arby's, which is owned by Roark Capital Group, for $157 a share. Considering that this stock was at $100 near the end of October, that's a pretty amazing bid. So now we have Restaurant Brands, the savvy owner of Burger King and Tim Horton's, buying Popeyes (PLKI) , another chicken restaurant chain, in this deal. And we know that Tyson (TSN) has tremendous chicken demand and Hain Celestial (HAIN) has off-the-charts turkey demand, not just for the holidays.
What does it add up to? I think all these operators would tell you that millennials have fallen in love with protein and the protein from poultry is what they want. Perhaps it doesn't even matter what the motivation might be, the fact is real money is chasing restaurant stocks even when the companies are being hurt by both the stay-at-home and takeout movement. The latter has really hurt Buffalo Wild Wings because it sells so much beer with the wings and that's where the profit margin is. One thing's for certain, the short-sellers who were operating on the restaurant chains because of oversupply and higher food and labor costs sure look stupid now.
Or how about General Electric (GE) ? The longer it stays at $18, the more likely it is that the company's stock may at long last be bottoming. My theory? GE used to be known as a hedge fund in drag, a term that wags came up with because the company did so much financial business vs. actual manufacturing. Its capital arm started dwarfing its industrial arm. When GE got in trouble in the late 2000s, it decided to leave the financial betting and move into oil and gas as it sold off finance. It sold the finance division at what looks to be near a bottom and it bought oil and gas and power infrastructure at what seems to be near the top and averaged down when it purchased Baker Hughes earlier this year. (Apple, Broadcom and General Electric are part of TheStreet's Action Alerts PLUS portfolio.)
This whole transition has made a company that used to say it was neutral relative to the direction of oil into one that is heavily dependent on higher oil and gas prices. Think of it, power construction and turbines need big utility orders, but the utilities are hunkering down worldwide as many countries encourage renewable resources. Baker Hughes badly needs higher oil and gas prices. Locomotives need higher oil and gas prices to spur demand. Aircraft engine manufacturers need higher oil and gas prices in order to entice airlines to save money on their largest cost, fuel. Sure, GE has a small renewable business relative to the rest of its power entries. Healthcare is indifferent. But the fact is that GE can bottom as oil goes higher because it is now more of an oil stock than anyone thought possible two years ago.
Now there are some aspects of the market that beg commentary. The climb higher in bitcoin could resonate negatively at some point, as it really feels like the run-up in the dot-com-related stocks into March 2000. But a collapse in the cryptocurrency shouldn't influence the S&P any more than a collapse in the Nasdaq did. The decline in the S&P after the peak in 2000 largely stemmed from tech, and a healthy basket of stocks diversified away from tech did quite well.
So we keep waiting for the stunning declines that have to occur on bad news out of Washington and negative analyst calls and correlations that have produced declines in stocks, and they aren't happening. The mighty stand and show no signs of tumbling.
