Pragmatism, not ideology. Pro-growth, not pro-austerity. Partnership with business, not war on business. That's what's driving the stocks of so many big companies higher right now, even as others sell off, in a bizarre confluence of good and bad news that's correctly defined by today's averages. The Dow is struggling to stay positive, soaring, the S&P declining ever so slightly and the Nasdaq getting crushed.
In the last 24 hours, President-elect Donald Trump has appointed pro-business people at the same time as cajoling other business people to spare jobs that otherwise would be lost to Mexico.
The result is that the market's anointing a whole new group of stocks while slaughtering others, and I want to explain why that is and how you can profit from it.
Let's trace the narrative. First, Trump's picks announced today, Steve Mnuchin as Treasury secretary and Wilbur Ross as secretary of Commerce, are sending a huge message: From now on, people who are pro-business and pro-growth are going to get key jobs in this administration.
Close viewers of CNBC know Ross is a pragmatic, crafty business person who knows how to invest well and place bets on industries that could thrive, but others that have been given up on, including steel, coal and textiles. Trump wants to try to revive these kinds of industries. Maybe he can, maybe he can't, but if there is even a possibility, Ross will figure it out. I know Ross, he's smart, he's clever and he's pragmatic to a fault. I love that in business people.
I am not saying Ross is the reincarnation of Charles Wilson, the head of General Motors (GM) , who, when he was nominated for defense secretary by President Eisenhower, famously said that what was "good for the country was good for GM and vice versa." But I am saying Ross is good for stocks, which happens to be my ideology.
How about Steve Mnuchin? I have met him in passing, can't say I know him, although I worked for his dad, Bob Mnuchin, whom we affectionately called "Coach," when he ruled the trading desk at Goldman Sachs. Coach retired at the top to do great things in the art world. I learned a ton from him.
Look, I have to believe Steve learned a heck of a lot more than any of us from Coach. He spent almost two decades at Goldman and then invested correctly in the savings and loan market at the absolute bottom. Mnuchin is, again, a business person and a fantastic investor.
I stress these credentials because these are people whom President Obama would never think of naming. They are people who are part of the traditional business establishment and they know how to make money and have businesses grow.
With these picks, Trump is sending a huge signal: He wants people who will be savvy enough to grow our economy faster, to take back jobs, including manufacturing jobs, and to have the government promote business and the causes of business.
That's their mission. It was not the mission of Obama. The country did create hundreds of thousands of jobs under Obama. But he did not surround himself with business people. His people, to me, were always circumspect of the traditional business people.
Trump is embracing them. Again, good for business. Good for stocks.
When Mnuchin and Ross came on our air this morning, I was blown over by what they said. They talked about cutting corporate taxes, and creating jobs and giving the middle class tax breaks but not the rich. That's going to spur growth. Again, I can't emphasize enough, these two picks are about growing the pie so everyone does better.
You may think that's impossible. But if you even for a moment believe it could happen, then you need to know that it is my judgment that Ross and Mnuchin are savvy enough to get it done.
They are get-it-done guys.
Finally, there's Trump's gambit to save 1,000 jobs from going to Mexico by negotiating with the head of United Technologies (UTX) , Greg Hayes, to keep Carrier plants open in Indiana that were slated to close to save money.
Trump called Hayes and basically said that it would be a good idea for the country to keep those jobs in Indiana and that otherwise he would do a lot to help United Technologies and all other businesses by repatriating overseas dollars using lowered tax rates, including the $7 billion that United Tech has in foreign domains.
Trump got pretty much what he wanted, and about half the jobs will stay here. There were small incentives for United Technologies, but the gist of it is that UTX will not make as much money now but will also be less at risk of losing the $6 billion in federal contract business that it has.
Is this good for stocks? No. Will it be a warning to other businesses that they should think twice before they move their operations offshore? You bet.
Is it pro-growth? It's pro-U.S. Growth for workers, not shareholders. But Trump figures he's giving enough to shareholders that he can lean on businesses to save jobs.
OK, if we have a pro-growth president who is appointing people who will further that agenda, then why the heck didn't stock prices soar?
Couple of reasons. First, out of nowhere OPEC made a deal that raised the price of oil dramatically. The stock market likes it when oil goes higher because of increases in demand, not cuts in supply. So oil company users lost even as the oil companies gained, especially the domestic companies with holdings in the Permian Basin in Texas, which is very profitable right here, with crude at $49, up an astounding 10% in one day.
In addition to short-sellers buying back their oil shorts, investors clamored for anything oil and clearly had to make sales away from oil to raise the money to buy them. I would wait for the oil stocks to cool off. They are up too much in one day.
Second, a pro-growth agenda is great for the stocks of industries that need the government to help spur that growth, the basic industrials, the transports, and of course the banks, if Treasury nominee Mnuchin gets his way. The rally in banks continues. It shows no signs of stopping. I like these stocks. I continue to preach investing in banks, and as I said earlier this week, not only should you not sell the banks, you should buy them.
Third, though, a pro-growth agenda doesn't mean much at all for companies that already have a lot of growth, namely technology stocks, or those that won't see growth accelerate despite what Mnuchin or Ross or Trump will do, the stocks known as the defensives, that you buy when growth is slowing. Health care, drugs, foods, you name it, their stocks aren't going to rally on statements about revitalizing American manufacturing.
I think there will be bargains in the groups getting crushed because they are selling off too hard, as is almost always the case in this market, which exaggerates every single move in either direction.
Or to put it in my language, today the oil FANG is biting the heck out of the tech FANG. That's right, Diamondback Energy (FANG) , one of the fastest-growing oil companies, saw its stock jump $11 or almost 12%, while Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Google (GOOGL) , now Alphabet, were laid to waste. (Facebook and Google are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of TheStreet's Growth Seeker portfolio.)
That's a pretty poignant dichotomy.
Again, I want to emphasize, these moves are way over the top. Energy's too strong, although the direction's right. Tech's too weak, although I can see why it would sell off. The soft goods? Case by case.
And the banks? I think with Mnuchin and Ross in there, the windfall of the banks continues.
Put it all together and we can have a down day because the industries that are directly benefited by the Trump growth agenda don't make up as much of the S&P 500 or, especially, the Nasdaq. But give it a couple of days to sort out and I think you will find that the news is better for all companies, there just isn't enough money coming in on a given day to make everything rally all at once.
It's another rotation in a long line of rotations that will run its course before another one begins anew. Not business as usual. But pro-business for certain.